Consumers bet on further rate cut

by Julia Corderoy05 May 2015
Fixed rate demand has fallen to its lowest level in more than two years as consumers bet on another cash rate cut this year.

According to the latest national home loan approval data from Mortgage Choice, fixed rate home loans made up just 17.9% of all loans written in April, down from 18% the month prior.

Speaking about the data, Mortgage Choice chief executive John Flavell said fixed rate demand hasn’t been this low since February 2013. 

“Variable home loan rates, specifically ongoing discount mortgages, continue to be the most popular product amongst borrowers, accounting for 43.96% of all loans written,” he said. 

“Fixed rate demand has taken a significant hit in recent months. Just one year ago, fixed rate demand was sitting at record highs and now it is hovering near record lows.”

The desire to lock in mortgage rates has fallen as rhetoric from the Reserve Bank suggests that further monetary policy easing may be necessary, according to Flavell.

“This sudden drop in fixed rate demand appears to be caused by the fact that an increasing number of borrowers believe home loan interest rates may fall further over the coming months. This is understandable given that the Reserve Bank of Australia continues to indicate that further easing of monetary policy may be appropriate.”

According to the latest Reserve Bank conducted by, just over half (53%) of the 34 economists and analysts surveyed are expecting the cash rate to remain on hold today. However, the majority of those surveyed (62%) are forecasting at least one cash rate cut by the end of the year, with most expecting the cut to occur between July and September.

Flavell believes that the Reserve Bank probably doesn’t have the drivers to warrant another rate cut in May, but a future rate cut is possible.  

“The latest data from the Australian Bureau of Statistics found unemployment fell slightly in April, while underlying inflation rose 0.6% over the March quarter for an annual rate of 2.35% - perfectly within the Reserve Bank’s target band range,” he said.

“These two factors combined would suggest the drivers aren’t there to encourage the Reserve Bank to cut rates again, though future rate cuts cannot be ruled out.”