April 03, 2012
Lenders' independent interest rate rises are likely to have contributed to an increased number of borrowers choosing fixed rate loan products in March, according to national home loan approval data from Australia's largest independently-operated mortgage broker, Mortgage Choice.
The nationwide franchisor found demand for fixed rate loans accounted for 26% of approved home loans last month. This was the highest level reached since March 2008, a time when 35% of all new home loans were fixed rates, and is well up on this same period last year when only 10% were fixed rate loans.
Mortgage Choice spokesperson Belinda Williamson said, "The popularity of fixed rate loans has reached a four-year high. The record swing towards this loan type indicates borrowers have some concerns over the future direction of home loan interest rates - whether this is the Reserve Bank moving the cash rate or lenders moving their interest rates independently of this benchmark."
"Borrowers' appetites for fixed rate loans may have also been spurred on by competitive lender pricing. However, it will be interesting to see if fixed rate loan demand tapers off in coming months as interest rates on these products have begun edging upwards. When reviewing the rate movements across our 27-strong lender panel, 14 lenders raised their interest rates on fixed rate home loans in March.
"Lenders' independent interest rate rises and a marked increase in the number of lenders raising interest rates on fixed rate loans are an indication that the home loan market is ever changing. It pays for borrowers to be responsive to such changes and make informed home loan choices."
Ongoing discount rate loans - where the interest rate is discounted over the entire loan term, usually in exchange for an annual fee - made up 38% of all variable rate loans approved in March. This was down from 42% in February and slightly below the 6-month average of 43% and the 12-month average of 40%.
Demand for standard variable rate loans was fairly stable, rising to 17% from 16%, up marginally on the 6-month average of 16% but behind the 12-month average of 19%. Basic variable loans fell to 14% from 17%, just below the 6-month average of 15% and below the 12-month average of 18%. Line of credit loan popularity rose marginally to 4% from 3% and interest in 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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