Drop in Demand for Fixed Rate Mortgages

Read | 3 MIN

With mortgage rate interest rates at historic lows, demand for fixed-rate mortgages has continued to fall. Despite very attractive pricing, Australia’s home buyers are continuing to rebuff fixed-rates in favour of variable rate home loans.

Data collected by Mortgage Choice in June revealed 86 per cent of borrowers in Victoria had variable rate loans approved, followed by South Australia (82%), Western Australia (79%), Queensland (77%) and New South Wales (76%).

Mortgage Choice Chief Executive Officer Susan Mitchell said, “This drop in demand for fixed loans is hardly surprising when you consider the spate of variable interest rate reductions that followed the two consecutive cash rate cuts from the Reserve Bank.”

“A snapshot of approval data from last week suggests borrower preference for variable loans is growing,” she added.

“If we look at the split of variable-rate and fixed-rate home loans at the end of last week, we can see a clear shift towards variable rate loans. In fact, this type of loan product accounted for 86.5% of home loan applications submitted by our broker network, and only 13.5% of customers chose to fix.”

“What is truly shocking about this data is that demand for fixed-rate loans has not been this low in almost eight years,” said Ms Mitchell.

The drop in demand for fixed-rate home loans comes amidst speculation that the Reserve Bank will continue to make further cuts to the cash rate.  The minutes of the RBA board’s meeting in August seemingly supported this, indicating that the current period of low interest rates would remain and that further easing of monetary policy was likely.

Read more: how much can I borrow for an investment property

how much can I borrow for an investment property

With previous consecutive cuts in the cash rate by the Reserve Bank resulting in widespread reductions in variable rates, borrowers are eyeing up future opportunities to save on repayments should the cash rate drop further.

Also affecting demand for variable-rates, more customers are receiving discounts on packaged home loans and mortgage brokers are negotiating better rates with lenders as well.  Home loan experts point out that this is a borrower’s market with many great deals available for customers who seek them out, such as interest only home loans.

Read more: what is a mortgage broker?

However, home loan experts contend a fixed-rate mortgage still has many important benefits to consider.  For instance, the certainty in knowing how much your repayment will be each month helps with budgeting and brings some peace of mind. This is especially true for first time buyers who can find it difficult to adjust to life with a home loan. If interest rates do rise, you don’t want to find yourself unable to make your home loan repayments.

While current market conditions may favour variable-rates, it is important to consider all the benefits and risks involved. With fixed rates as low as 3.09% p.a. and home loan experts forecasting mortgage interest rates to remain low, borrowers are in a great position to negotiate.

Ms. Mitchell says “With such great deals to be had, it would be a shame for any borrower to be complacent when it came to the interest rate they’re paying on their loan. For most of us, our home loan is our most significant debt, so you are really doing yourself a disservice by being afraid to haggle.”

“That being said, I think it’s important for borrowers who may be considering a fixed rate to know that we have seen a significant reduction in fixed rates offered by the lenders on our panel, which suggests that the outlook is for rates to remain lower for longer,” she adds.

Looking to purchase or refinance? Want to get the best mortgage rate interest rate? Compare home loans and save! Get a personalised report in 3 easy steps with Property Market Investor.

Leave a Reply

Your email address will not be published. Required fields are marked *