Borrowers fixated on a rate cut

Demand for variable rate home loans reached an eleventh month high in July as speculation of another rate cut in coming months lingers, according to national loan approval data from Australia’s largest independently-operated mortgage broker, Mortgage Choice.


August 02, 2012

Demand for variable rate home loans reached an eleventh month high in July as speculation of another rate cut in coming months lingers, according to national loan approval data from Australia's largest independently-operated mortgage broker, Mortgage Choice.

Rising three percentage points to reach 85% of all new home loan approvals during July, variable rate demand has not been this high since August 2011, when it represented 86% of all new loan approvals. 

Western Australia was the only state to go against the grain and report a drop in variable rate demand, which fell to 81% in July from 86% in June. Meanwhile, the average increase of variable rate uptake across the remaining states was a rise of 3.75 percentage points.

Company spokesperson Belinda Williamson said, “The vast majority of borrowers are feeling as confident about variable interest rate movements now as they did back in August 2011, a time when borrowers had experienced nine consecutive months of steady interest rates, which was followed by rate cuts.”

“Borrowers' hopes of another rate cut in the coming months may be underpinned by the low inflation figures released last month. This might be enough for the Reserve Bank to recognise that some parts of the economy, particularly the property market, are in need of monetary stimulation.”

“But the decision won't be made lightly. There are positive factors in our economy today and any further cuts to the cash rate may send signals to foreign investors that our economy isn't in good shape. Such a decision will also leave the Reserve Bank with little to nothing left in the petrol tank if domestic factors or the situation in Europe deteriorate.”

Despite the ‘will they, won't they' debate around the cash rate in coming months, it seems borrowers are focused on getting the lowest interest rate possible. The top two variable rate loan choices in July are known for having relatively low interest rates in exchange for fewer loan features and/or an annual fee.

“Demand for ongoing discount rate loans where the variable rate is reduced usually in return for an annual fee, rose by four percentage points to 44%, while interest in basic variable rate loans, which often have a low interest rate in exchange for fewer loan features, increased by one percentage point to 20% of all new loans,” said Ms Williamson.

“Borrowers' interest in standard variable rate loans fell last month to 18% from 19%, as did the appetite for fixed rate loans, which dropped considerably to 15% from 18%.”

“Western Australia was the only state to record a rise in fixed rate loan demand, which may be explained by the impact of the state's mining boom on living costs, and borrowers looking to cap their expenses.”

The popularity of line of credit home loans fell by one percentage point to 3% of loan approvals and borrowers' preference for introductory rate loans remained below 1%. 

Note: Mortgage Choice currently writes almost one in every 20 new home loans in Australia, equating to approx. $10 billion in approvals per year, hence it provides a clear insight into borrower preferences. The 19 year old mortgage broker has a loan book of over $42 billion.

 

For further information or to arrange an interview, please contact:

Belinda Williamson       
Mortgage Choice Corporate Affairs  
02 8907 0472 / 0407 416 124    
belinda.williamson@mortgagechoice.com.au
 

Michelle Ryan  
BlueChip Communication
02 9018 8608 / 0404 381 886
michelle@bluechipcommunication.com.au


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