Andrew Clifford, like many Australians, sought stability amid rising interest rates by switching his mortgage from a variable to a fixed rate in March. This move came just before the Reserve Bank of Australia (RBA) raised the cash rate to 4.6%, its highest level in 15 years. Clifford expressed relief but noted that mortgage holders are bearing the brunt of inflation. He wished for longer fixed-rate options, similar to those available in the US.
In the US, government-backed entities like Fannie Mae and Freddie Mac guarantee about 70% of mortgages, making 30-year fixed-rate loans more affordable. Richard Holden, an economist at the University of NSW, explained that this system provides borrowers with payment certainty. However, Holden cautioned that fixed rates lock in higher payments if interest rates later fall, as they did between 2015 and 2021.
Japan offers mostly 35-year fixed-rate mortgages due to historically low interest rates, though this is changing as the Bank of Japan raises rates. In South Korea, variable-rate mortgages dominate, but the gap between fixed and variable rates is narrower due to unique rental schemes like 'jeonse'. Doowon Lee from the University of Sydney noted that Korea's capital gains tax policies also influence mortgage choices, discouraging short-term property flipping.
Experts agree that Australia would need significant structural changes to adopt a US-style fixed-rate system. Holden suggested government intervention to reduce risk for lenders, while Lee pointed to South Korea's targeted policies to increase fixed-rate mortgages. Both emphasized the need for policy shifts to alter the mortgage landscape in Australia.