The latest RBA Bulletin explains why the central bank is monitoring the fixed rate refinancing “cliff” including potential concerns on financial stability.
The Reserve Bank warned that borrowers who fixed their home loans at the low rates offered during the pandemic are more likely to be first home buyers, have larger loans relative to their income, and hold less equity than variable rate borrowers.
“It could ultimately increase the potential for financial stability risks if many borrowers default on their loans, leading to losses for lenders, or reduce their consumption to the extent that unemployment increases significantly and other borrowers facing unemployment in turn struggle to service their debts.
“This is a key group to monitor as fixed rate loans roll off over the period ahead, especially if this group also has low savings buffers.”The RBA said only one quarter of fixed rate loans outstanding in early 2022 have expired. Another 40 per cent will expire by the end of 2023, and a further 20 per cent by the end of 2024.
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