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Rate cut speculation lifts variable rate demand

Ongoing speculation about another rate cut in the near future has encouraged an increasing number of borrowers to choose a variable rate home loan, new research has revealed.


August 01, 2016

Ongoing speculation about another rate cut in the near future has encouraged an increasing number of borrowers to choose a variable rate home loan, new research has revealed.

According to Mortgage Choice's latest national home loan approval data, variable rate home loans accounted for 79.76% of all loans written throughout the month of July – up 0.82% from 78.94% the month prior.

“While demand for variable rates continues to rise, fixed rate demand continues to slide, with this type of product accounting for just 20.24% of all home loans written last month,” Mortgage Choice chief executive officer John Flavell said.

“Of course, I am not surprised to see a reduction in the level of fixed rate demand. Over the past couple of weeks, speculation about another rate cut has intensified.

“A number of economists now believe, thanks to the latest inflation results, that another rate cut could happen within the next couple of months.

“Borrowers are acutely aware of this market chatter and, as such, are keen to have a variable rate mortgage that will fall as home loan interest rates do.”

Mr Flavell said if the current yield curve was any indication, interest rates will likely stay very low for the foreseeable future, benefiting mortgage holders.

“The historically low rate environment is helping to keep heat in the property market, with the latest data from CoreLogic showing property values rose by 0.8% across the combined capital cities over the month of July,” he said.

“Unsurprisingly, Sydney and Melbourne were the standout performers, with the capital cities recording property price growth of 1.3% and 1.1% respectively.”

Looking ahead, Mr Flavell said it is likely property prices will continue to rise across some of the major capital cities as interest rates continue to hover around record lows.

“Further, I would expect to see demand for variable rates continue to rise as rates remain low and potentially fall further.”

Across the country, variable rate demand was highest in Victoria, with this type of product accounting for 87.96% of all home loans written throughout the month.

South Australia was not far behind, with variable rates accounting for 84.86% of all loans written.

Demand for variable rate home loans was lowest in Western Australia, with this type of product making up 71.07% of all loans written.

Of the different variable rates on offer, ongoing discount products continued to prove the most popular with borrowers, with this type of product making up 46.72% of all loans written throughout the month of July. 


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