Are borrowers shunning fixed rate loans?

by Miklos Bolza07 Nov 2016
The demand for fixed rate home loans continues to decline, according to national broking franchise Mortgage Choice, with more borrowers opting for variable rates instead.
 
Looking at its latest national home approval data, Mortgage Choice found that fixed rate loans accounted for 17.4% of all loans written in October. Although this was slightly up from the 16.7% in September, it was much lower than the national average of 20.8% for the 12 months prior.
 
“With the Reserve Bank of Australia clearly indicating that rate hikes are a long way off, I’m not surprised to see more people opting for variable rate mortgages,” said Mortgage Choice CEO John Flavell.
 
“Borrowers are savvy; they understand that interest rates are more likely to fall than rise over the short to medium term. As such, they feel comfortable opting for a variable over a fixed rate mortgage.”
 
Breaking down the numbers by state, Flavell said that fixed rate home loans accounted for 5.9% of all loans in Victoria, 23.8% in Queensland, and 19.9% in New South Wales.
 
Mark Davis, ‎recently crowned Australian Broker of the Year at the Australian Mortgage Awards and director of the Australian Lending & Investment Centre (ALIC), said that the current market made it less likely for consumers to lock into a specific rate, especially as there was no immediate rate change predicted.
 
“I think a lot of our customers will start to lock in as soon as they start to think the market’s going to move,” he told Australian Broker. “And they’ll be holding off for probably another six months or so.”
 
Since ALIC caters to mostly investment lending, clients are also less likely to opt for fixed rate mortgages, he added.
 
“Because we’re investment, most clients are less risk-averse which means they don’t really look in to where the rates are moving too closely unless there’s going to be a serious change.”
 
“The people who should be locking in are the risk-averse clients who are nervous, short on cash flow, and aren’t used to taking out debt – those people should be locking in to secure their position.”
 
Raymond Xue, ‎senior manager at ACA Mortgage Solutions, seemed to buck this trend saying that the demand for fixed rate home loans among clients was actually increasing.
 
“Economists predict the official cash rate will remain low or there will be a one-time decrease at the most,” he told Australian Broker. “In the long-term the rate is going to increase so, at this time, it’s a pretty good time to lock in.”
 
One popular product among his clients was the split home loan with half fixed, half variable rates. Often, these came with offset accounts and the option to pay extra upfront.
 
“The number of purely fixed mortgages is steadily increasing but not by that much. Combination mortgages are more popular,” he said.
 
Related stories:
 
Current mortgage trends a boon for brokers
 
Smaller rate cuts may push borrowers to fixed rate loans
 
Variable rate holders better off than fixed rate holders

COMMENTS