A mortgage cliff is when there is a looming rise in repayments due to fixed-rate mortgages ending. You may have heard the term recently, as Australia will be facing one from as early as April 2023.
As always, it’s important to be informed and not influenced by what you read from news outlets. In this article, we will go over what a mortgage cliff is, and what it means for you if you are considering buying, investing, and selling in Brisbane.
In response to the economic effect of COVID-19, the cash rate was reduced to an emergency low. This made borrowing money highly accessible and created a highly competitive market, leading to the property boom of 2020 through to early 2022.
During this time, a record number of homebuyers entered the property market and secured short-term fixed loans. CoreLogic data shows fixed-rate lending grew to around 64% of all home lending, from an average of 15%, before the pandemic.
Many of these loans will be reaching the end of their term from mid-2023, meaning that borrowers will be faced with repaying their mortgage at much higher variable interest rates. This is what market commentators refer to as a mortgage cliff.
From a market perspective, it means that these borrowers are yet to be impacted by the RBA’s rate hikes and might face financial strain when their fixed term ends. However, many market experts and commentators are predicting that it won’t be as bad as the noise surrounding it.
Most people will be fully aware of the interest rate hikes that have occurred and that their short-term fixed-rate mortgage must come to an end. Therefore, they have had the time to prepare for when they roll over to a higher variable rate while acknowledging they were smart to lock in a lower rate at the time. As well as this, banks have been telling their customers that their repayments will rise when their fixed loans expire.
So, while there will be a jolt for these borrowers' monthly repayments life in one hit, it’s exactly what all other borrowers have been dealing with as interest rates have been rising since May 2022, which has been very hard to miss.
What does this mean for the Brisbane Property Market?
Ultimately, no one has a crystal ball, so every prediction should be taken as it is, a prediction.
Inevitably, some stress sales may occur with those under a financial strain, which could temporarily increase the rate of decline in property values.
With the fear-mongering media coverage about what interest rates might do next, you would be forgiven for thinking there were no buyers however our indicators say otherwise.
If you are buying in selling in the same market, a decrease in values should not be of concern and can work in your favour if presented with the right opportunity. If you're feeling hesitant about making a move, speak with your local Place Agent who can help you navigate the current market and achieve an optimal outcome.
Looking for more information about Brisbane Property Market? The Place Insights Annual Market report is just around the corner and will cover market activity in 2022 and a deep dive into what our experts expect to see in 2023. Click here to be the first to receive it when it’s released in late January!
The information contained on this website is general and does not take into account your situation. If you expect to be affected by rising interest rates you should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser or mortgage broker.