Fixed vs variable – broker weighs pros and cons

The Reserve Bank announced the official cash rate would remain the same on Tuesday with variable rates continuing to sit at record lows. 

However, fixed rates are rising amongst the major banks, confusing some Australian consumers.

Sam Ayliffe (pictured) is the owner and principal of brokerage Astute Financial Manly. He said the broker channel was becoming more prevalent and educating clients on the RBA’s monthly decisions was important.

“We know a lot of people do not understand the divide between fixed rates and the RBA’s official cash rate with variables, so it is our job to help our clients with the education process,” Ayliffe said.

“With the appeal for variable rates as cheap as they are now, people are not immune with fixed rates staying low.”

Read more: Broker celebrates RBA decision

Ayliffe said the only way variable rates can go is up.

“As they are more aligned to the RBA cash rate, we anticipate they will move when that moves. We suggest to our clients if their budget is tight to consider a fixed rate,” he said.

Ayliffe recommended to clients if they could weather a potential interest rate rise, variables offered significant savings in today’s market for an uncertain amount of time.

“If you wish to eliminate risk, or mitigate it, you can split your loans to be part variable and part fixed,” he explained. “Variable for lower rates and unlimited extra payments, fixed for stability and resisting market pressure for a term.”

Sometimes brokers needed to have difficult conversations with clients and it was important to communicate them on a regular basis, he said.

“At the end of the day, it is all about the client,” he said. “Communication within our industry is key.”

Inflation and the rising cost of living was affecting clients’  borrowing capabilities.

“It is important a client’s living expectation is aligned with their borrowing capacity,” he said. “As the cost-of-living rises, expenses increase with less money to service a loan and less leftover funds per month.”

Ayliffe said the broker channel was more relevant given the number of lenders brokers can now access.

“As an industry, we become that much more important in tighter times,” he said.

Every bank had different policies and criteria and brokers had the knowledge and the backing of best interests duty to make credit accessible to a wider variety of clients.

Read more: RBA remains firm on interest rates

Ayliffe has worked within the industry for over 20 years and established his Manly brokerage 18 years ago.

“I am very fortunate for the long-term great team I have with me,” he noted. “We specialise in managing client expectations and help them achieve the Australian dream of buying a property.”

In March, the MFAA announced brokers settled the highest number of home loans and total loan value during the six months to September 2021.

“I love our industry and genuinely believe we are the reason the market is as competitive as it is,” Ayliffe said. “Without knowledgeable and outstanding brokers who can challenge lenders for better deals and competitive pricing, along with the products we can offer, the market would be very different today.”