Mortgage cliff a mirage as banks keep borrowers

afr.com:

Halfway through a $350 billion wave of home loans moving from a fixed rate to a more expensive variable interest rate, the major banks appear the early winners, picking up business from smaller lenders even as arrears stay low.

Commonwealth Bank, which has $52 billion of mortgages transitioning off fixed rates in the second half of the year, said arrears for loans rolling onto variable rates were in line with its broader portfolio. Thirty-day arrears were just 0.92 per cent and 90-day delinquencies were 0.43 per cent, it said.

Mortgage brokers say the reset is still causing a “whiplash” to household spending. Wolter Peeters

That could mean the so-called mortgage cliff is less steep than first expected. The cliff was based on market expectations that borrowers who took out home loans when interest rates were at record lows during the COVID-19 pandemic would struggle financially once they moved to higher rates. The Reserve Bank has lifted the cash rate by 4 percentage points since May last year.

But mortgage brokers say the reset is still causing a “whiplash” to household spending as business bankers fret about the toll of low consumer spending, especially in the consumer discretionary retail sector.

Sebastian Watkins, chief operating officer at Aussie Home Loans owner Lendi, told The AustralianFinancial Review that “the peak of the cliff is happening now” and “we are going to see more mortgage holders than ever drop from historically low fixed rates (circa 2 per cent) to 6 per cent”.

“This whiplash in household expenses will cause a significant amount of financial pain and stress for Australian mortgage holders,” Mr Watkins said, who is most concerned about first home buyers who took out loans when they only had to prove