Demand for fixed rate loans now down for 6 months

by AB02 Mar 2018

Demand for fixed rate home loans has fallen for the sixth month in a row amid growing expectations that the cash rate is not likely to rise soon – or will not rise at all this year. 

Mortgage Choice’s national home loan approval data found that a total of 78.25% of borrowers opted for variable home loans in February, up from 77.93% the previous month.

Fixed rate home loans accounted for only 21.75% of all loans written in February – down from more than 28% six months ago.

“We first saw demand for fixed rate home loans fall in September 2017 when just over 28% of customers opted for a fixed rate mortgage. In February, this percentage dropped to 21.75%,” said Mortgage Choice CEO John Flavell.

While the trend is not surprising, Flavell said the speculation of at least one cash rate rise later in 2018 may urge borrowers “to consider fixing part of their home loan” in the near future.
  
“We may see an increase in demand for fixed rate products in the future, particularly if the Reserve Bank of Australia raises the official cash rate,” he said.

But more economists and banks are changing their forecasts of interest rate hike this year – from two to one or none.

ANZ abandoned last month its previous forecast of two interest rate increases this year, and now expects no rate hike in 2018. 

From its forecast of two rate hikes this year, NAB now expects only one in late 2018, citing weak growth in wages and the slow progress in bringing down unemployment. 

“It is not impossible that the RBA stays on hold for all of 2018 and raises rates in early 2019,” said NAB chief economist Alan Oster last week.

By state, the proportion of borrowers taking out fixed home loans eased everywhere except in Queensland and South Australia. 

Fixed rate loans accounted for 28.07% of all loans written in Queensland in February, up from 26.33% in January, while in South Australia, the proportion of fixed rate loans went up from 16.60% to 24.19%.
 
Demand for fixed rate loans was lowest in Victoria, where the products accounted for only 10.97% of all home loans written.

 
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