Borrowers still opt for variable rates

by Rebecca Pike15 Sep 2018

Variable rate home loans still account for the majority of mortgages being written, despite the out of cycle rate increases.

According to Mortgage Choice home loan approval data, variable home loans made up 82% of all mortgages written throughout August 2018. This was an increase of 0.37% from the month before and almost 4% higher than the 12 month average.

After three of the major banks decided to increase rates in the start of September, however, the mortgage group has suggested it could incentivise borrowers to fix their rates.

Across the country, variable rate demand was the highest in Victoria for the eighth consecutive month. Just over 87% of borrowers in the state opted for this type of home loan.

This was followed by South Australia, where nearly 87% of borrowers chose a variable rate mortgage.

The data showed that New South Wales is still the most likely to choose a fixed rate mortgage, with more than 21% of borrowers choosing this type.

Mortgage Choice chief executive officer, Susan Mitchell, said, “The fact that a higher proportion of borrowers in New South Wales chose to fix is largely unsurprising when you consider recent data.

“According to CoreLogic’s Housing Affordability Report for the June quarter, Sydney was the nation’s least affordable housing market across three purchasing metrics. Moreover, the report showed that affordability in regional NSW has also deteriorated.

“In recent times, we have seen a number of rate increases which predominantly affected investors and interest only borrowers.

“As investors retreated from the market, variable rate home loan products dominated as the preferred product among owner-occupier borrowers who make up the biggest part of mortgage demand.

“However, in the last couple of weeks, three out of the four major lenders announced they would be lifting the interest rates charged on their variable rate loan products due to higher wholesale funding costs. These cost increases will impact owner-occupiers and borrowers who may have been comfortable to ride the variable rate wave, may now look to fix their interest rate in order to protect themselves against further rate rises.