Fixed rate demand falls in November

With no change to the official cash rate in sight, fewer Australian borrowers are opting for fixed rate home loans.

December 06, 2017

With no change to the official cash rate in sight, fewer Australian borrowers are opting for fixed rate home loans.

The latest national home loan approval data from Mortgage Choice found fixed rate home loans accounted for 24.32% of all mortgages written throughout November.

“We saw a slight drop in the proportion of buyers opting for fixed rate home loans last month,” Mortgage Choice chief executive officer John Flavell said.

“In fact, the last time fixed rate demand was this low was back in March 2017. There are a couple of reasons for this drop in fixed rate activity.

“Firstly, the Reserve Bank of Australia has kept the cash rate on hold at 1.5% for more than a year. Looking forward, there is nothing to suggest that the Reserve Bank will start to rapidly and dramatically increase the cash rate. Borrowers are acutely aware of this and, as a result, are happy to ride the variable rate wave rather than lock themselves into a fixed rate home loan.

“Moreover, a number of Australia's lenders are offering competitive rates and discounts on their variable rate home loan products. Over the last few weeks, we have seen a number of lenders trim the interest rates on some of their variable rate products, which could be making these types of products more desirable amongst borrowers.”

Across the country, Queensland boasted the highest level of fixed rate demand, with this type of product accounting for 28.99% of all loans written throughout November, down from 31.70% the month before.

South Australia wasn't far behind, with fixed rate products accounting for 27.16% of all loans written throughout the month.

At the other end of the spectrum, Victoria had the least appetite for fixed rates, with this type of home loan accounting for just 13.47% of all home loans written throughout the state.

On a whole, variable interest rate loans were the most popular products, making up 75.68% of all loans written by Mortgage Choice.

Looking ahead, Mr Flavell said he wouldn't be surprised to see a slight reduction in fixed rate demand over the coming months, especially if the Reserve Bank of Australia continues to leave the official cash rate on hold.

“The fact is, most lenders are offering very competitive variable rates at the moment. Borrowers are acutely aware of this and are looking to take advantage of the low variable rate environment.

“Of course, there are also some very competitive fixed rates on offer at the moment too. With that said, regardless of which product a borrower opts for, they can be assured of securing a very sharp rate.”
Mr Flavell said with interest rates currently hovering around historical lows, there really has never been a better time to be a home buyer.

“Rates are sharp and some of the heat has come out of the property market. Both of these elements combined make for a perfect buying market,” he said.

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