Is now the right time to fix interest rates?

In a recent interview with MPA, Mortgage Choice CEO Susan Mitchell pondered whether fixed rates could drop even further, explaining “There’s a lot of competition out there to get the customers and so the banks are really doing their best to give some great rates.” This had us wondering – is now the time for borrowers to fix? Or could there be even lower fixed rates on the horizon. MPA posed this question to Specialist Finance Group aggregation manager Blake Buchanan, co-founder and CEO of Lendi David Hyman, and director and founder of Australia’s top brokerage 1st Street Financial Jeremy Fisher. This is what they had to say.

Blake Buchanan, aggregation manager, Specialist Finance Group

“Historically, there has never been a better time to borrow money for suitable applicants and soon it could get even better due to the record low interest rate environment. Fixing, though, requires an understanding of not just of how the product works with the positives versus restrictions and break fees, but a deep understanding of a client’s plans, needs and objectives.

“I think any pundit telling anyone that now is a great time to fix without understanding their personal circumstances is a miscarriage of a broker’s duty. That being said, if a fixed rate is suitable, the rates we are seeing today sub 2% are extremely attractive and what we are seeing is more fixed rates coming into the market with variable rate product features.

“I would caution though that we are in for a medium to long term low interest rate market where the gap between a featured up variable rate to fixed is not that broad anyway and so the features and benefits would need to weighed up.

“I personally am not a fan of fixing entire loans but am considering fixing a portion at present due to my circumstances. This is why it is so important that consumers talk to brokers about their finance options, who will educate them around product selection and, as we always have done, have their best interests at the forefront of what we do.”

David Hyman, CEO and co-founder, Lendi

“There could be lower rates, but I think if you hold the view that Australia’s not going to go into negative interest rate territory, for certain segments of borrowers, we’d strongly recommend considering a fixed rate.

Read more: Why putting your clients into a fixed-rate mortgage might be a good idea

“If you’re an owner-occupier who’s not looking to move in the next few years, a two-, three- or four-year fixed rate can be had for less than 2%. That’s a really, really compelling offer and lots would have to change for that to move materially, in particular, if you’re on a variable rate today. Most of the variable rates at the moment are in the low to mid twos, so there’s significant incentive to move into a fixed rate and not a lot that could mean a variable rate could be cheaper.

“If you’re an investor as well then you don’t get excluded from that either. It really just depends on how long you plan to hold the property and you should tailor your fixed rate accordingly, but people need to speak to an expert or a broker to work out what their unique circumstances mean for fixing.”

Jeremy Fisher, director and founder, 1st Street Financial

“I think it’s definitely worth a conversation and consideration to be fixing now. It’s not something we’ve been talking to clients about over the last few years because it just hasn’t been on the radar, but the premium now on a fixed rate versus variable - there’s quite a saving.

“I think it’s really important that those who fix consider possibly splitting the loans to have a variable component so they can make reductions, but also for brokers to understand if someone is fixing their position, are they going to be selling in the next few years, are they going to have an inheritance where they can pay down the loan? Because, obviously fixing is quite rigid. So, if a few questions are asked and the client’s position is understood then I think it is a good opportunity for clients to take advantage of the lower rate by fixing some or all of their loan.

“It would be wrong of me to say I don’t think there’s a chance that rates could fall further, but - will we see fixed rates drop? Or will we just see the variable come off a bit? That’s the unknown. It wouldn’t surprise me if fixed rates were at the bottom somewhere.”