The Finance Brokers Association of Australia (FBAA) is alarmed by reports the European Central Bank's rate cuts will mean cheaper mortgages for Australian borrowers.
FBAA chief executive Peter White said that while everyone would like cheaper rates, it will also encourage people to overcommit without taking future rate rises into consideration.
“Our response to these media reports is 'caveat emptor' – buyer beware – as rates that are too low can only go in one direction,” Mr White said, adding that abnormally low rates may encourage more loans but, “the upwards correction could be quite large to compensate the extreme low”.
“This will not only remove any advantage borrowers had but could have the reverse effect and result in people losing their homes due to a failure to meet increased payments,” he said.
Just as the FBAA has often called for banks to absorb increases to protect borrowers, they should equally absorb any unusually low cost of funds, Mr White said.
“Borrowers thrive when interest rates are more constant,” he said.
“Any drop on the cost of funds simply won't last. It can't.”