Rate rises to inflate fixed home loan demand

by Miklos Bolza03 Mar 2017
Fixed rate loans across February accounted for more than 22.2% of all loans written, according to national home loan approval data from Mortgage Choice.

These monthly figures were down from the 23% of fixed rate loans written in January.

“While fixed rate demand was down slightly in comparison to last month, the fact that over 20% of borrowers are choosing to fix their mortgage is still significant,” Mortgage Choice chief executive officer John Flavell said.

“Of course, given that so many lenders have raised their interest rates over the past few weeks, I am not surprised to see one in five borrowers opting for a fixed rate home loan.”

Flavell said he wouldn’t be surprised to see even more borrowers choose to fix part or all of their mortgage – especially with the expectation that lenders will continue to lift their rates.

“In recent weeks, the Reserve Bank of Australia’s governor Philip Lowe has made it clear that future rate cuts are now more unlikely than likely. With this in mind, it would appear the only way for rates to go is up,” he said.

“As more lenders start to lift their rates, we may see more borrowers choosing to fix their mortgage in a bid to avoid further rate hikes and provide themselves with some certainty around their regular mortgage repayments.”

Even if interest rates continue to rise across all loan products, including fixed rate mortgages, there would be an increasing proportion of borrowers opting to fix at least some part of their loan, Flavell told Australian Broker.

“And, if the RBA chooses to lift the cash rate, I would expect to see a jump in fixed rate activity,” he added.

Demand for fixed rate loans was highest in NSW, accounting for 24.2% of all loans written in February. Queensland came in second at 23.3%.

However, that data found that variable rate home loans, particularly ongoing discount mortgages, were still the most popular loan product in Australia. Ongoing discount home loans – those with a discount for the full term of the loan on the standard variable rate – accounted for 44.3% of all mortgages written across the country.

“Given that interest rates are so low at the moment, the majority of borrowers are happy to take their chances with a variable rate,” Flavell said.

“On the whole, people tend to prefer variable rate over fixed rates because they get to take advantage of any rate reductions in the market. In addition, fixed rates are (generally speaking) more expensive than variable rates.”

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