Has the fixed rate mortgage cliff fallen short?

Collage of a woman falling off the fixed rate mortgage cliff.

The fixed rate mortgage cliff was one of the scarier predictions made about this year. However, new data from CoreLogic reveals that our worst fears about the fixed mortgage cliff may not have happened – nor are they likely to. 

Indeed, even the current Reserve Bank of Australia governor Philip Lowe admitted the fixed mortgage cliff has been largely nonexistent, explaining that borrowers coming off low pandemic-era fixed rate home loans haven’t had any more trouble making repayments than variable ones. 

In theory, this is great news. There hasn’t been a cascade of home loan defaults that could herald a recession, nor has there been a significant spike in distressed home sales or negative equity

But don’t celebrate just yet: thousands of fixed borrowers still have yet to come onto variable rates, and mortgage stress is still high.

So is the fixed mortgage cliff something to worry about? Or is the drop-off more gentle?

What is the fixed rate mortgage cliff?

Man falling off the fixed rate cliff

The so-called “fixed rate mortgage cliff” was coined to describe the price shock Australian households would experience due to the unprecedented expiry of 1.3 million low-rate fixed home loans throughout mid-2023 to mid-2024. 

This was the risk: a larger-than-normal percentage of home loan borrowers took out fixed rate mortgages between mid-2020 and 2022, given that fixed interest rates fell to historic lows. These mortgages were mostly set for 1- to 3-year terms. 

This shielded a large portion of the property market from the effects of recent RBA rate hikes. Borrowers on variable rates have had to cope with 4.00% worth of rate hikes, and the corresponding increases to their mortgage interest repayments – fixed borrowers haven’t.

However, the majority of fixed mortgages are set to expire this year, which means they risk rolling onto new variable rates 3% to 4% higher. This sudden shock to mortgage repayments could theoretically spiral into an affordability crisis as borrowers struggle to cope with costs.

Is the fixed rate risk high? Data shows disaster may be averted

Borrowers calculating their budgets for when their first rate mortgages expire

Even at the height of fixed-rate popularity in early 2022, fixed rate home loans accounted for just 40% of all credit. This means the vast majority of home loans in Australia are variable rate, and, therefore, already exposed to RBA rate hikes. As fixed terms expire, the market's share of variable rates only grows larger daily. 

Fortunately, this means we’ve largely already seen how borrowers have coped with rate hikes. Many have fallen back on savings, refinanced their home loans to a lower rate mortgage, and/or adjusted their lifestyle to meet the demands of mortgage repayments.

Data from the Australian Prudential Regulation Authority (APRA) shows that arrears (or late repayments) make up only 1.2% of outstanding loan debt. This number is extremely low, and much lower than pre-pandemic levels (1.6%). 

Admittedly though, this number has climbed up a bit from September 2022 (1.0%), showing that rate rises have applied pressure to household budgets. But CoreLogic head of research, Eliza Owen, says that payment arrears “are not necessarily a timely measure of mortgage stress.” 

“Not only is the APRA data slightly lagged,” explains Owen, “but measuring late payments means there is an additional lag on the data, where those struggling with higher housing costs tend to prioritise housing payments, and may take a while to actually miss a payment.”

Indeed, representatives from major banks claimed in a parliamentary hearing that the vast majority of borrowers have been resilient to RBA rate hikes – which the banks have eagerly passed along in full.

This doesn’t mean the housing market isn’t under stress. Cracks have instead appeared in the larger economy, namely by a plummet in consumer spending and sentiment and a loss in household saving ratios. 

Housing values – which grew significantly throughout the start of 2023 – have also cooled their enthusiasm, and sales stock bounced +2.8% in July despite a lacklustre number of buyers, indicating that homeowners may be selling to escape hefty repayments.

But perhaps what has helped us avoid the worst of the fixed rate cliff was that rate hikes – and the cliff itself – have been so heavily telegraphed. 

“The vast bulk of Australians are sensible. They knew this was coming,” said RBA governor Philip Lowe in a parliamentary hearing last week. 

“It has gone smoothly, but that doesn’t mean there won’t be problems down the track.”

CoreLogic’s Eliza Owen supports Lowe’s caution, saying that as the last rate rises flow through home loans, there may be a “mild deterioration” in the property market.

However, as the RBA inches closer to the cash rate peak, homeowners at least can look forward to the prospect of an extended rate hold, and – if conditions favour it – a rate cut in late 2024. 

Compare low rate home loans in the table below.

Home loan comparisons on Mozo

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Last updated 22 June 2024 Important disclosures and comparison rate warning*
  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discount Variable Home Loan

    • Owner Occupier
    • LVR<70%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    6.01 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

  • Variable Home Loan 90

    • Principal and Interest
    • LVR <90%
    Interest rate
    6.04 % p.a.
    Variable
    Comparison rate
    6.06 % p.a.
    Initial monthly repayment
    $3,011
    Go to site

    Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • The Better Home Loan Special Offer

    • Owner Occupier
    • Principal & Interest
    • LVR<80%
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a variable rate home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Offset Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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