Borrowers ditch fixed rate mortgages

Its official - nobody is interested in fixed rate loans anymore

Following the generous RBA rate reduction in October, a tiny 3% of borrowers took out fixed rate loans in that month, according to the latest Mortgage Choice approval data. Instead, a whopping 84% of all loan approvals were in the variable rate category, with line of credit mortgages attracting more than 11% of borrowers.

The fixed rate figure is the lowest it has been since Mortgage Choice commenced its loan product reporting in February 2003.

The release of the data comes as lenders make dramatic cuts to fixed rate loans to try and entice borrowers - earlier this week BankWest cut its two year fixed rate home to 5.99%, while the CBA today revealed it would cut its two year fixed rate loan to 6.89% on Monday.

However, with economists tipping rates to fall as low as 3.5% next year, borrowers are banking on further reductions.

Mortgage Choice senior corporate affairs manager, Kristy Sheppard, said, "Fixed rate loans continue to fall out of favour with Australian borrowers. Those borrowers choosing variable loans were encouraged by the Reserve Bank's reduction of the cash rate by 100 basis points in October."

Sheppard said the demand should continue, following the 75 points reduction in November.

"The Australian mortgage landscape has really experienced an about-face on fixed loans. In October 2007 they were the loan of choice for 22% of borrowers but in October 2008 this figure stood at less than 3%. Despite continued interest rate reductions on fixed products, borrowers are cautious to embrace them at present because of the anticipation of further rate cuts," she added.