May rate cut doesn't deliver increased variable rate demand

by AB13 Jun 2013

Despite the cash rate cut in May and forecasts for more cuts to come, a growing number of new borrowers have chosen a fixed rate loan, according to national home loan approval figures from Mortgage Choice.

Fixed rate loans amounted to 30.10% of all new loans during the month of May. This is the fourth consecutive month that demand for this loan type has risen – rising by 13.75 percentage points since January.

Mortgage Choice spokesperson, Belinda Williamson says that while the majority of people have again chosen variable rate loans this month, it’s interesting to note that they continue to lose favour.

“This is despite slowly rising consumer confidence and with talk of further rate cuts still on the cards. For four consecutive months now, a growing number of new borrowers have chosen a fixed rate loan. In fact, the uptake of fixed rate loans now sits almost seven percentage points above the six-month average.”

“Given the on-going, competitive pricing of fixed rate loans, it is possible that new borrowers choosing this loan type are motivated less by the peace of mind offered by steady repayments and more by the current offers.”

“From a local perspective, all states apart from Victoria saw an increase in fixed rate demand. Queensland had the greatest rise, with the preference for fixed rates growing by 7.43 percentage points to reach 37.84%, which was the highest of any state. At the same time, demand dropped in Victoria by 0.03 of one percentage point to 21.21%, which was the lowest of any state.”