Borrowers concerned about rate rises as fixed rate demand soars

by Julia Corderoy15 Dec 2014
Fixed rate home loan demand has reached its highest level in over three years, suggesting that home buyers are still concerned about rising interest rates despite the speculation of rate cuts next year.

The proportion of borrowers fixing their home loan through comparison website was 36% in October – the highest level for the past three years since the cash rate began falling in November 2011. The demand for fixed home loans dropped slightly to 33% last month, although the demand still remains historically high.

Twenty-five percent of borrowers were fixing their home loan through the site at the beginning of 2014, while only 11% were choosing a fixed rate loan in November 2011, at the beginning of the downward cycle.

Michelle Hutchison, money expert at, said that the majority of rhetoric is still around rate rises next year, which could see borrowers wanting to lock in a low rate.

“Even though some experts have changed their forecasts and are now expecting a rate drop before they start to rise, the majority are still expecting rates to rise next year.

“The Reserve Bank Survey found seven of the 37 leading experts changed their forecast to be a rate drop next year. Despite this, they are still expecting rates to eventually rise, so borrowers who have overstretched themselves or concerned should consider locking in a fixed rate home loan.”

Record-low interest rates could also be a factor, said Hutchison, after competition in the mortgage market has caused lenders to slash interest rates this year. 

“This year, we've seen average variable home loan rates fall by 0.24 percentage points – from 5.46% in January to 5.22% now. The difference in monthly repayments for a $300,000 loan size over 30 years is $45 less per month.

“We've also seen fixed rates also take a dive, with the average three-year fixed rate falling by 0.19 percentage points from 5.17% to 4.98% now. If you fixed a $300,000 home loan in January you would be paying $35 more per month than if you fixed now.”