The fixed-rate cliff is a scenario you may have heard about recently if you own real estate or are looking to buy. The situation is expected to trigger a number of property sales, which may be a good thing for first home buyers.

Of course, it is impossible to predict the future with complete accuracy but here is why some people are actually in favour of the recent interest rate rises because it opens up opportunities in the property market.

What is the fixed-rate cliff?

The fixed-rate cliff is associated with fixed-rate home loans.

When taking out a mortgage, buyers have the option of choosing a variable or a fixed-rate loan. A variable loan means interest payments will fluctuate based on the numbers set by the Reserve Bank of Australia. A fixed-rate loan means the rate is decided in advance and is fixed for a predetermined time.

No fixed rate loan is fixed for the full term of a mortgage. That means that at some point, homeowners paying at a fixed rate will have to pay a rate more consistent with current interest rates.

Three years ago, interest rates hit record lows. Many investors opted into the property market, setting a low fixed rate. Now, those rates are set to expire, which may add as much as $1,000 per month to the repayment costs of a home loan. Because of this high number of borrowers and home owners may decide they would rather sell their property than pay a much more expensive mortgage. In some unfortunate cases, the extra cost is unmanageable and will mean the bank takes over and sells the
property for them.

What’s going to happen

Most Australians are tightening their financial belts this year because there have been ten successive interest rate rises, and there are more to come.

Real estate data company CoreLogic says the ‘hit’ is most likely to start being felt in April 2023 as a result of high numbers of fixed rate loans expiring and other people putting their homes on the market because they cannot cope with mortgage costs.

How will this affect you as a first-home buyer?

For first-home buyers, the fixed rate cliff could be good news.

To start with, the fixed rate cliff, along with a few other factors, is making buyers tentative at the moment. This means there are fewer people looking to make a property purchase.

If investors decide to let go of their properties in higher numbers than usual, the result will be a surplus of stock on the market. First home buyers will finally have some more breathing room and the ability to negotiate.

It’s never nice to benefit from someone else’s troubles, but if you have a steady income and preapproval from your lender, this means you may be able to make the leap into home ownership this year.

Start speaking to agents today

Buyers who can accommodate the currently high interest rates should find they have the advantage in the Australian property market over the next few months. Even if values drop for the short term, history has shown they will start to rise before too long.

Now is the time to start building relationships with real estate agents to let them know your budget and your goals so you can take advantage of changing interest rates pushing more homes onto the market.

Want to buy your first place? Contact me today at teresa@teresaberger.com.au .