Fixed rate demand falls to new lows

September 03, 2015

Demand for fixed rate home loans fell to its lowest level in almost three years, new research has revealed.

According to the latest national home loan approval data from Mortgage Choice, fixed rate home loans accounted for 17.41% of all loans written throughout the month of August – down 1.05% from 18.46% the month prior.

Mortgage Choice chief executive officer John Flavell said the drop in fixed rate demand was surprising given the current volatility of the home loan market.

“Generally speaking, when the market is volatile and lenders are moving their rates – as they are doing now – fixed rate demand increases, as borrowers look for security and consistency around their mortgage repayments,” he said.

“In recent weeks, many of Australia's lenders have increased their interest rates across their suite of investment products. Despite this, more borrowers are choosing variable rate home loans over fixed rate mortgages.”

Mr Flavell said the last time fixed rate demand was this low was back in January 2013.

“It has been 31 months - or almost three years – since fixed rate demand was this low. Across Australia, fixed rate demand was lowest in Victoria, with this type of product accounting for just 11.66% of all loans written throughout August,” he said.

“Western Australia and South Australia weren't far behind, with fixed rates accounting for 14.16% and 14.59% of all loans written in both states respectively.”

Of the variable rate loans on offer, ongoing discount products once again proved the most popular with borrowers, with this type of product making up 48.38% of all loans written in August.

“With rates sitting at historically low levels, it is fair to say that regardless of whether a borrower chooses a fixed rate or variable rate home loan, they are going to secure a competitive rate,” Mr Flavell said.

“But while borrowers are guaranteed to secure a low rate, it is critical that they still do their due diligence and research what products are available. Over the last few months, the home loan market has become incredibly complex. With the Australian Prudential Regulation Authority stating that lenders should limit their growth in investment lending to 10% each year, a lot of the banks have started to make some significant changes to both their mortgage policy and pricing. With that in mind, it makes sense for all borrowers to speak with a professional to ensure they are getting the right home loan for their needs.”

For archived copies of the Homeloan Choices bulletin, please refer to Choices Newsletter.