September 01, 2011
Borrowers' uptake of fixed interest rate home loans rose by less than one percent of approvals over August despite lenders introducing large reductions to the cost of their fixed term loans, according to Australia's largest independently-owned mortgage broker.
Fixed rates accounted for 14.1% of Mortgage Choice's home loan approvals last month, up only slightly from 13.3% in July (though rising for the third consecutive month), while the popularity of ongoing discount loans continued its steady increase, up from 38.6% to 41.5% of approvals.
Company spokesperson Kristy Sheppard said, "New borrowers' appetite for ongoing discount home loans has steamed ahead for 10 consecutive months now. We have reached a point where demand for such mortgages is more than double that for any other, at 41.5% of all our August approvals."
"This loan type, where the interest rate is discounted over the loan term usually in return for an annual fee, overtook standard variable as the favourite in April and hasn't looked back. The trend speaks volumes about new borrowers' and refinancers' mindset around interest rate rises and the value they place - or rather, don't place - on locking in their rate at the moment.
"I expected the take-up of fixed rate home loans to grow noticeably in August due to the well publicised reductions many lenders have been applying to their fixed term pricing. Despite our lender panel's average three-year fixed rate falling half a percent in the past four weeks alone, fewer than one in seven new mortgage holders fixed part or all of their rate last month.
"Borrowers' reticence to fix may also be influenced by memories of the break costs many people faced when considering switching out of their fixed terms during Spring 2008 to Autumn 2009 when the cash rate fell from 7.25% to 3.00% and home loan interest rates followed."
Demand for standard variable and basic variable home loans fell in August, to 19.2% and 18.2% of approvals, as did that for line of credit and introductory rate loans, to 4.7% and 2.4%.
Note: Mortgage Choice currently writes one in 25 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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