May 03, 2012
Borrowers saw value in variable rate home loans in April, with nearly eight in every 10 new home loan customers choosing this loan type, according to national loan approval data from Australia's largest independently-operated mortgage broker, Mortgage Choice.
The uptake of variable rate loans rose nationally to 78% in April from 74% in March. In fact, every state saw a rise in appetite for this loan type. The largest increase in popularity came from Victoria/Tasmania, where demand rose to 91% in April from 86% in March.
Company spokesperson Belinda Williamson said, "Fuelling a rise in demand for variable rate loans in April was most likely the expectation of a May cash rate cut. We believe many borrowers were eagerly awaiting the savings that this could bring to a variable rate loan."
"Clearly when rate cuts are imminent, and when borrowers are feeling more comfortable about the direction of rates, more borrowers are willing to ride the waves associated with variable rate loans."
Concurrently, fixed rate loan demand dropped in April to 22% from 26% in March.
"In March, the demand for fixed rate loans hit its highest level in four years. This was on the back of a slew of competitive fixed interest rate drops by lenders. However, during April demand eased as lenders reversed this trend by upping their one, two and three-year fixed rates," said Ms Williamson.
Ongoing discount rate loans - where the interest rate is discounted over the entire loan term, usually in exchange for an annual fee - made up 40% of all variable rate loans approved in April. This was up from 38% in March, and in line with the 12-month average but below the 6-month average of 42%.
Demand for standard variable rate loans edged up to 19% from 17%. This was slightly ahead of the 12-month average of 18% and the 6-month average of 17%.
The popularity of basic variable loans remained steady at 14%, in line with March and the 6-month average but below the 12-month average of 17%. Line of credit loan demand was also steady at 4% 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.
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