Fixed-rate lending has surged during the pandemic,but many borrowers could face higher repayments when their fixed period expires.Credit:Louise Kennerley
Given more than one-in-four home loans is with the CommBank,what it expects in this area is likely to reflect the experience across the home lending industry.
Fixed-rate mortgages have historically played only a small role in Australia,but the extraordinary fiscal stimulus of the past two years changed all that.
Banks slashed fixed-interest mortgage rates to less than 2 per cent in many cases,and customers leapt at the opportunity to borrow so cheaply,causing fixed-rate lending levels to surge.
The trend allowed many people to cut their interest bills,but markets are now convinced we are getting closer to a turning point in the interest-rate cycle,due to higher inflation. That will mean when the term on all those cheap fixed-rate loans ends,many customers will be faced with much higher monthly repayments.
CBA’s numbers suggest expiring fixed-rate loans would peak in the second half of 2023,when a whopping $53 billion in CBA fixed-rate loans will expire.
Why does this matter? Because when a fixed term ends,the loan typically reverts to a variable interest rate.
If market expectations of rising rates are correct,these variable rates will be significantly higher by late 2023,leading to a sharp lift in repayments for people coming off fixed rates.