Fixed rate demand surges higher

May 02, 2016

Continued interest rate uncertainty has encouraged more borrowers to fix their mortgage, new data has revealed.

According to Mortgage Choice's latest national home loan approval data, fixed rate home loans accounted for 24.41% of all loans written throughout the month of April – up 1.26% from 23.15% recorded the month prior.

Speaking about the results, Mortgage Choice chief executive officer John Flavell said he wasn't surprised to see a slight jump in demand for fixed rate home loans.

“Borrowers are, understandably, confused when it comes to the future of interest rates. Some economists are predicting that interest rates will fall in the near future, while others are talking about rate rises,” he said.

“Last month's disappointing inflation result has many industry speculators believing that we could see a rate cut in the coming months.

“But while we could see the Reserve Bank of Australia cut the official cash rate at least once more this year, that doesn't mean to say Australia's lenders will pass rate reductions onto their customers.

“Over the last few months, we have seen many of Australia's lenders increase their interest rates out of cycle with the Reserve Bank. So while the cash rate may fall, interest rates may not.

“The uncertainty surrounding the future of interest rates is clearly being felt by borrowers, with an increasing number looking to fix their mortgage.”

Across the country, demand for fixed rate products was highest in Western Australia and Queensland, with this type of product accounting for 27.40% of all home loans written throughout April.

In New South Wales, fixed rates accounted for 26.37% of all loans written, while 23.00% of all loans written in South Australia were fixed.

Victoria boasted the lowest proportion of fixed rate home loans, with this product accounting for just 15.48% of all loans written in April.

But while the popularity of fixed rates continued to grow across most states, variable rates – specifically ongoing discount products – continued to prove the most popular product with borrowers.

“Variable rate loans will no doubt remain popular with borrowers for years to come as they allow mortgagors to take advantage of rate reductions,” Mr Flavell said.

“Of course, given the current level of interest rate volatility, I would expect to see more borrowers looking to lock in at least part of their mortgage.”