June 03, 2015
Demand for fixed rate home loans climbed slightly higher over the month of May, new data has revealed.
According to the latest national home loan approval data from Mortgage Choice, fixed rate home loans made up 18.17% of all loans written in May - up from 17.91% the month prior.
Speaking about the data, Mortgage Choice chief executive officer John Flavell said demand for fixed rate products hadn't been this high since the beginning of the year.
“Since the Reserve Bank of Australia cut the official cash rate to the new historical low of 2% at its May Board meeting, speculation has started to mount that we are now at the bottom of the rate cycle,” he said.
“Following last month's rate cut, the domestic economy has started to shows signs of improvement. Consumer sentiment improved dramatically, while business conditions retraced some of the gains reported in March.”
According to Mr Flavell, these improvements suggest the RBA's May rate cut had a positive impact on the local economy and as such, there is no immediate reason for the Board to cut the cash rate again – a sentiment that was reinforced by the Board at the June meeting.
“The longer the Reserve Bank avoids cutting rates, the more likely we will be to see borrowers locking themselves into a fixed rate product as they look to take advantage of the historically low rate environment,” Mr Flavell said.
Prior to May, fixed rate demand had taken quite a hit. In April, fixed rate demand hit its lowest level in two years, with variable rates proving the most popular product amongst borrowers.
In May, variable rates, and more specifically ongoing discount home loans, were the most popular, with this type of product accounting for 46.29% of all loans written – up slightly from 43.96% the month prior.
Across the country, ongoing discount home loans are most popular with South Australian borrowers, with this product accounting for 48.47% of all loans written in May. Queensland and New South Wales weren't far behind, with this product making up 47.58% and 47.36% of all loans written respectively.
Moving forward, Mr Flavell said while ongoing discount home loans will remain popular with borrowers, fixed rate demand may continue to grow slightly month on month, especially if the Reserve Bank continues to leave the cash rate on hold.
For archived copies of the Homeloan Choices bulletin, please refer to Choices Newsletter.