Interest rate rises can create uncertainty for your customers, and that is why now is the right time to show your customers the true value of a mortgage broker.
The latest in our series of compliance webinars covered some of the common issues brokers face when engaging with their new and existing clients through a rising rate environment and gave solutions to help them navigate it.
Shirley Elliot, our National Compliance Manager, presented the webinar and explained that there are borrowers that may have entered the property market that would have never experienced a cash rate above 0.10%.
Here’s a summary of the key topics that Shirley covered in the webinar:
Common compliance trends seen by our Complaints Officer
- The requirements and objectives were not sufficient;
- The reason why the product was selected was not matched or adequately to the clients’ requirements and objectives;
- In times of pressure, clients often consider the loan arranged for them historically to be unaffordable today;
- The customers raise a complaint they were not offered a rate lock, and there is nothing on file to substantiate this;
- Insufficient contemporaneous notes on file.
Futureproofing new client engagements
It is important to prepare customers for any possible rate rises in the future and to capture the discussions you have with your customers about their rates.
Make sure your customers are clearly aware of the type of loans available to them. Here are some explanations that you can use:
Fixed rate loans
In a rising rate environment, some borrowers prefer to lock in a fixed rate for a period of time. This protects them from any future interest rate increases for the fixed period and provides certainty that their repayments will remain the same.
Variable rate loans
While a variable rate loan can be more flexible than a fixed rate one, there are potential downsides. If the RBA cash rate goes up or if a lender increases rates, mortgage repayments will increase, too. Consider the budget impact if mortgage repayments increased by $100 per month, $500 per month or even more.
Both
Alternatively, there is the option of a split loan where a portion of their home loan is fixed and the remainder is variable. This can be the best of both worlds, offering both some degree of certainty but also the freedom to repay faster or redraw from the variable portion.
What can you do?
- File notes of your discussions (using the file note template)
- Education:
- Capture your discussions with clients
- Fact sheets:
Living expenses
- Capture expenses adequately
- Assist clients to consider all expenses
- Capture and manage foreseeable changes
Modelling
Getting in touch with your existing customers
A rising rate environment is a great time to reach out to your clients and review their situation and look to see how you can help them.
Consider the following proactive actions:
- Don’t be afraid to answer the phone;
- Contact your customers;
- Educate your customers;
- Alleviate their concerns.
Hardship
As interest rates rise, some of your customers may be affected by the increase in repayments and may need to seek financial relief. Get to know the hardship rules, so that you’re ready to support them if they need your assistance.
If your customers are experiencing hardship you can put them in touch with their lender, who'll be able to talk to them about options that may be available to them.
You can access the lender hardship team by searching hardship and the lender name under the Suite 360 Lenders tab.
Remember to reach out to us!
If you have any questions about your compliance requirements or any of the recommendations made in this article, please contact the AFG Compliance team.
A Help article has been created containing compliance tips and tools to assist brokers with rising interest rates. You can find it here.
Check out the webinar for yourself
You can catch up on the webinar here. Remember it is also worth 1.0 CPD point, which you’ll receive upon completion.
