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Level of fixed rates could hint at likely cash rate peak, mortgage brokers say

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Aaron Christie-David, managing director of Atelier Wealth, said banks advertise where they think interest rates will go over the next few years through fixed interest rates.

“House always wins,” he said. “Banks have a lot of data. We have a lot of experts on our team.

“I call it a soft signal, which is where they think interest rate expectations will reach.”

As interest rates rise, buyers’ ability to borrow decreases.credit:Flavio Brancaleone

Christie-David said that as interest rates rise, buyers’ ability to borrow decreases, but prices for top-quality real estate aren’t falling as fast as their ability to borrow.

Some buyers, who are more budget-conscious, are willing to wait and see, especially if they’re feeling the pinch of rising costs of living, or considering properties that need renovation or are in low demand. he said.

The warning comes at a time when economists are offering broad forecasts for interest rate peaks this cycle.

The Commonwealth Bank’s forecast is the lowest, expected to reach a peak cash rate of 3.1% at the Reserve Bank’s next meeting in two weeks’ time.

Mortgage Choices Rob Lees, principal of Blaxland, Penrith and Glenmore Park, said buyers should add their own buffers to their budgets, aside from bank-imposed stress tests.

“When you’re budgeting, add at least half a percent extra,” says Lees.


“We might also do some small calculations, such as whether interest rates are half a percentage point higher or one percentage point higher, so they know what happens when interest rates go up.”

The average customer may be able to borrow $50,000 or $100,000 less since interest rates started rising, he added.

“They either increase their income or decrease their debt.”

Foster Ramsay Finance principal broker Chris Foster Ramsay answers questions about interest rate expectations from existing borrowers.

“[If] It’s someone coming down from fixed rates and they’re saying,

“Based on where the interest rate is, we expect to double the fixed rate repayment you’ve been paying.”

But with mortgage costs at record lows, he was preparing for these borrowers.

“Then, if we were to go back to the world record low interest rates and do it, I would absolutely give the advice, ‘Let’s go to 2.5% now, but at 4% this is what’s going to happen’.”

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