The recent rise in Australian cash rates has been a hot topic in the financial sector, with concerns about the potential impact on mortgage borrowers.
As interest rates continue to rise, many borrowers are worried about the ability to meet their repayments. The record-high levels of household mortgages outstanding in Australia, combined with rising inflation and the cost of living, have left many borrowers feeling stressed and uncertain about their financial future.
RFI Global, with its recently acquired DBM Atlas product, has created Australia’s most comprehensive financial services customer dataset, encompassing customer behaviour and attitudes in the Australian market.
DBM interviews 80,000 consumers and businesses in Australia annually, while RFI interviews over 100,000 consumers and businesses in Australia annually.
This new, enlarged dataset provides fascinating insights on Australian consumers, particularly on the topic of mortgages.
According to RFI Global’s Australian Mortgage Council, anticipated mortgage stress is at a record high, with almost one in three borrowers surveyed in March expecting to struggle to meet their mortgage repayments over the next 12 months, up significantly from 22 per cent since last December.
The increase in anticipated mortgage stress appears to be driven by both variable rate customers feeling the impact of rate rises, as well as concern among borrowers nearing the end of their fixed rate terms.
However, RFI & Atlas data shows that savings buffers can provide a cushion for borrowers rolling off fixed rates.
The data also shows that there is no significant difference between fixed rate and variable rate mortgage customers on two key measures such as the total savings relative to household income and total savings to loan repayment.
Borrowers on lower incomes have similar savings regardless of the type of interest rate on their loan, as do borrowers on higher incomes.
About one in five variable rate and about one in five fixed rate borrowers have less than three months’ worth of loan repayments in their savings.
These customers will likely be vulnerable to consecutive rate rises, however, those on fixed rate mortgages are no less prepared for rate rises than those on variable rates.
For the banks, interest rate changes have a significant impact on customer NPS. Around one in four major bank MFI customers hold a mortgage with their MFI, and how banks manage rate movements with their customers can have a significant impact on customer advocacy.
The decline in mortgage customer NPS over the last 12 months is due to the perception of “competitive interest rates.”
Mortgage customers’ rating of competitive interest rates has declined by 0.44 since last May.
Other ratings related to pricing have also declined, with fair fees and charges, transparent fees and charges, and the ability to negotiate all falling by between 0.28 and 0.38.
Atlas data also reveals that those on variable rates currently rate their bank about 17 NPS points lower than those on fixed or part variable rates.
This suggests that in addition to the gradual decline in NPS observed over the last 12 months for mortgage customers as rates have risen, there may also be a degree of frustration among variable rate customers who feel less in control of their repayments.
In conclusion, the recent rise in Australian cash rates has created uncertainty and stress among mortgage borrowers.
However, the data shows that savings buffers can provide a cushion for borrowers rolling off fixed rates. The banks must also pay attention to the impact of interest rate changes on customer NPS, particularly among mortgage customers, and work to address concerns related to pricing and competitive interest rates.
As the financial landscape continues to evolve, it is essential that banks and borrowers alike remain vigilant and proactive in managing their finances.
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