Fixed rate demand falls in February

March 14, 2019

Demand for fixed rate home loans fell in February, reveals new data from Mortgage Choice.

According to the Company’s latest national home loan approval data, demand for fixed rate home loans fell over the month of February, accounting for 22.82% of loans - a reduction of 1.05% from the month prior.

Demand for fixed rate loans had picked up in the latter half of 2018, in what may have been a response to rate hikes on variable home loan products.

Mortgage Choice Chief Executive Officer Susan Mitchell said a number of reasons may be discouraging borrowers from locking in to a fixed rate.

“Mounting speculation that the Reserve Bank may cut the official cash rate later this year may be weighing on borrower expectations around interest rates. These borrowers, who are expecting interest rates to fall in the near term may be less inclined to lock in to a fixed rate.

“Borrowers’ caution may be compounded by continued property price falls in the nation’s capitals which, according to the latest figures from CoreLogic fell 0.9% in the month of February.

“In the current property market, it is unsurprising to see an increase in demand for variable rate loan products. These loans are more flexible and allow borrowers to make added loan repayments, access home loan features such as an offset account and redraw facility, and of course save on their loan repayments if their interest rate drops.

“That being said, fixed rate loans are still an attractive option to people who are looking for certainty in their home loan repayments. This is particularly important at a time when there is considerable uncertainty in the market.

“Fixed rate loans may be a suitable option for borrowers who foresee a potential change to their income or, budget constraints.

“At present, there are many deals to be had for those looking to lock in a fixed rate, with two-year fixed rate loans on our lender panel as low as 3.69% p.a.* it’s a great time to review your home loan.

“My advice for anyone looking to have the best of both worlds is to speak to their mortgage broker about splitting their loan, which allows a borrower to allocate a proportion of the loan to a fixed interest rate, and a proportion to a variable interest rate depending on their financial situation,” said Ms Mitchell.

Mortgage Choice found that borrower preference varied across the country :

• Borrowers in Queensland were the most likely to fix their interest rate, with over 25% opting for a fixed rate home loan;
• This was followed by New South Wales where over 24% of borrowers chose to fix their home loans;
• In South Australia 22% of borrowers opted for a fixed rate mortgage;\
• In Western Australia 20% of borrowers chose to fix;
• And Victorians continue to prefer variable rate home loans with almost 17% choosing to fix their home loans.

* NAB First Home Buyers Special 2 Year Choice Fixed Rate OO P&I accurate at 8 March 2019