Consumer appetite up for longer fixed loan terms

by Miklos Bolza25 May 2017
A significant proportion of Australians would like lenders to offer longer term fixed rate home loan products, according to results from a new survey.

The research was run by Gateway Credit Union and looked at over 1,000 respondents across Australia. In total, 71.3% of those polled said lenders should offer longer term fixed mortgages.

Of those respondents who replied that banks should offer lengthier terms for their fixed mortgages:
  • 46.4% wanted 10-year fixed loan terms
  • 14.3% wanted 15-year fixed loan terms
  • 15.8% wanted 20-year fixed loan terms
  • 7.7% wanted 25-year fixed loan terms
  • 15.8% wanted 30-year fixed loan terms
Demand for fixed rate loans was also higher with 35.5% of respondents saying they would opt for a fixed rate loan. This was slightly more than the 34% who would opt for a spilt rate loan and the 30.7% who would opt for a variable rate home loan.

These findings suggest borrowers have been impacted by constant speculation around changing market conditions, said Gateway Credit Union CEO Paul Thomas.

“We know property prices are sky high, compound that with low wage growth, high levels of household debt and out of cycle rate hikes and you can expect that consumers might be worried about maintaining a loan, especially if they have no control over repayments because of a fluctuating rate,” said Thomas.

“A fixed rate home loan means borrowers would have peace of mind in uncertain times and the findings suggest that it’s a key consideration right now.”

There were a number of reasons why demand for anything beyond a 10-year loan term dropped off significantly, Thomas told Australian Broker.

“First, unlike our American counterparts, Australia has typically always been a variable rate home loan nation. Historically, we’ve preferred variable rate home loans, which have been around longer than fixed rate products.

“The other factor is the time horizon. Average mortgage churn occurs every five to seven years. Anything longer than a 10-year loan term may not be desirable because borrowers would want to avoid breaking the loan and paying associated break costs.”

Lastly, it is difficult for borrowers to predict what will happen with interest rates over such an extended time period, he said.

“In my experience, a fixed rate home loan is all about certainty. Borrowers who want peace of mind that their rate won’t change for a set period are willing to live with a slightly higher interest rate.”

For the current loans available from Australia’s banks, more than one in two (55.9%) of consumers would fix their loans for five years. This was significantly higher than those choose a three year loan (23.1%), two year loan (15.1%) and one year loan (5.9%).

“What’s interesting to note is the long-term option was by far the most desired over shorter term loans. We all know the RBA is likely to raise rates but these findings suggest borrowers think that once rates start to shift upwards they won’t be coming back down again for some time,” Thomas said.

With borrowers wanting certainty, many would be seeking to protect themselves from unforeseen shocks through a fixed rate or spilt rate home loan, he added.

“What these results ultimately reveal is that Australians might just be worried and this is influencing their decisions when it comes to their home loan.”

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