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The Dubious Angle to Fixed Rate Cuts

fixed rate cutsAn article on the website The Adviser addresses the concern about borrowers being euphoric about the fixed rate cuts and warns about a mortgage debacle when the rates correct themselves.

Banks are using the rate cut bait to attract borrowers

Borrowers need to understand that the banks are only bringing in fixed rate cuts in order to acquire business but the same institutions won’t be sparing any harassment when rate hikes force mortgage defaults. Borrowers must adhere to their financial fundamentals and prefigure if they will be good with the mortgage liability if there is a hike in rate or drop in level of income.

Lending institutions should act responsibly, too

At the same time, asserts the article, even the lending institutions should stick responsibly to principled lending and ensure that they do not use their legal leverage to give what may clearly be “undue hardship” for the borrower at the time of rate hike.

You can read the original article here.

In my opinion, the borrowers of today are an educated lot. This, however, does not undermine the established fact that buyers can never hope to equal the lending institutions when it will come down to the legality of a borrowing arrangement. Euphoric buyers can always look beyond their budget while buying a dream property but it sits with the lenders to clearly lay out all the pros and cons of a purchase to the buyer in as ethical a way as possible.

When do you foresee the next cash rate hike?