The Property Pack

The Times Property

Why borrowers should watch their pennies this Christmas

With the latest cash rate increase of 25 basis points today – the seventh in as many  months – one of the nation’s most awarded mortgage brokers believes borrowers  need to rein in their spending this Christmas to help fight inflation.  

2021 Australian Mortgage Awards Independent Broker of the Year and Zippy  Financial Director and Principal Broker Louisa Sanghera said while the cash rate  rises have been moderating, we all have a part of play to help control inflation.  

“If we want interest rates to come down, then we all need to do our bit to help reduce  inflation, including reining in spending where possible,” Ms Sanghera said.  

“Inflation is still far too high and with the holidays approaching, I am worried that  people will splurge money they don’t have on presents, which will add further  pressure to inflation into next year.  

“The rapid increase in interest rates is still clearly starting to hurt some borrowers, so  it would be a sound idea to try to be a bit more moderate these holidays given that  mortgage repayments have risen so sharply for people with variable home loans.” 

Ms Sanghera said more and more potential borrowers were also not passing finance  servicing assessments because of the three percentage point buffer being applied to  mortgage applications.  

“Prior to today’s announcement, mortgage applications were required to service  using interest rates of between 7.29 per cent to 7.54 per cent for variable loans,  which is much higher than the interest rates on the actual loans and is causing  problems for many potential borrowers,” she said. 

“Fixed rate home loans were being assessed against interest rates of between eight  and nine per cent, which is crazy given borrowers can still secure fixed home loans  at in the four per cent range.

“But unless we get inflation under control, these are the sorts of interest rates that  are going to be used to assess home loan applications, which are likely to drag down  property prices further.”  

Ms Sanghera also said it was vital for borrowers on fixed rate mortgages due to  expire in the second half of next year not to panic.  

“It does appear that some of the inflationary pressures are temporary, so we may  well see interest rates moderating earlier than predicted,” she said.  

“I have been receiving phone calls from borrowers who want to refinance now even  though their fixed rates mortgages are not due to expire for a year or more and the  rates on offer now are just off the charts. 

“It’s vital that all borrowers adjust their spending so they can manage current and  future mortgage repayments, including watching their pennies, if possible, this  holiday season.”