There’s a lot of noise – a lot of noise – about the “fixed rate cliff” in the media

What is the fixed rate cliff?

During Covid, many of us took advantage of the ultra low fixed rates on offer, and now these fixed rates are ending – the volume of the fixed rates ending all at once was the reference to the cliff – in essence, the thought was with everyone coming off fixed rates at once there was a risk of panic sales which could impact the housing market causing prices to drop with the increased listing and competition.

When was the cliff?

Based on corelogic data the peak of the “cliff” is likely to be now, August 2021 was the peak of uptake in 2-3 year fixed rate loans with ultra low rates. According to corelogic, 880,000 loans were to come off their fixed rates in 2023, and a further 450,000 due to expire in 2024

What would this mean?

In theory it means a significant number of home borrowers would start to struggle to meet their repayments at the end of their fixed rates, and in worst cases their homes would be sold by the bank when they default on their loan

In reality, anecdotally banks are reporting to us that the rate of loans in arrears (missed payments) is as low as it was pre-covid, which suggests borrowers are prioritizing paying their home loan first.

What was the expectation?

The expectation was a flood of properties hitting the market as borrowers struggled to make their repayments. Some prominent real estate promotors are talking about significant increases in mortgagee in possession sales (sales where the bank has taken over the property) but we aren’t seeing that and the numbers also don’t reflect it. Locally and anecdotally real estate agents are reporting a slight rise in mortgagee sales as well as a rise in sale appraisals – but this also isn’t unexpected given there’s a little bit more confidence in the market at the moment. The data suggests we’re actually below the average from the previous 5 years which belies the comment.