The demand for fixed rate home loans climbed over May, after the Reserve Bank’s decision to cut the cash rate to 2%, as speculation mounts that rates have bottomed.
According to the latest national home loan approval data from Mortgage Choice, fixed rate home loans made up 18.17% of all loans written in May - up from 17.91% the month prior.
Speaking about the data, Mortgage Choice chief executive John Flavell
says the demand for fixed rate products hasn’t been this high since the beginning of the year.
“Since the Reserve Bank of Australia cut the official cash rate to the new historical low of 2% at its May Board meeting, speculation has started to mount that we are now at the bottom of the rate cycle,” he said.
“Following last month’s rate cut, the domestic economy has started to shows signs of improvement. Consumer sentiment improved dramatically, while business conditions retraced some of the gains reported in March.”
After the Reserve Bank decided to keep the cash rate on hold in its June board meeting earlier this week, Flavell says he expects the demand for fixed rates to climb higher.
“The longer the Reserve Bank avoids cutting rates, the more likely we will be to see borrowers locking themselves into a fixed rate product as they look to take advantage of the historically low rate environment,” he said.
According to the data, fixed rate demand had taken quite a hit prior to May. In April, fixed rate demand hit its lowest level in two years.
Consumer data from finder.com.au shares the same sentiment, finding that more than half of borrowers (56%) are concerned about rising interest rates – 33% more borrowers than last year.
As a result, almost one in three borrowers or those planning to buy a property (28%) are choosing to fix their home loan, while one in four (25%) are choosing to split their loan with part fixed and part variable.
According to the Mortgage Choice data, variable rates – more specifically ongoing discount home loans – were the most popular in May, with this type of product accounting for 46.29% of all loans written – up slightly from 43.96% the month prior.