Borrowers risk jumping on the fixed-rate mortgage train too early

But households tempted to lock in their home loan repayments risk missing out on future savings, experts warn, amid forecasts the cash rate could start falling within months.

Mortgage Choice broker Luke Camilleri said some lenders are offering fixed rates below 6%, which is in line with some competitive variable rate home loans on the market.

“Every week we're getting updates on the rates changing and there's definitely been a few of the fixed rates coming down,” he told realestate.com.au.

“It is a bit of an indication that [the lenders’] economists are comfortable that in that timeframe rates are going to come down.”

With inflation cooling quickly, financial markets are pricing in two rate cuts by this time next year, while economists at Australia’s largest mortgage lender – the Commonwealth Bank – see as many as three cuts in the second half of 2024.

Mr Camilleri said borrowers need to consider whether they want the certainty that a fixed home loan offers, which could come at the risk of missing out on a lower variable rate.

“I’ll always give my clients the option, but I feel like they're jumping on the train a little bit too soon,” he said.

While variable home loans often rise and fall in cycle with RBA rate decisions, lenders tend to reprice their fixed rate mortgages independently to hedge against future moves.

Borrowers flocked to fixed loans during the pandemic when mortgage rates fell below 2%, but since peaking in 2021, the proportion of borrowers choosing to fix their home loan has dramatically decreased.

In December, just 2% of new home loans issued across the country were fixed, according to lending data from the Australian Bureau of Statistics, down from 40% two years earlier.

Mortgage Choice home loan submissions data shows that trend has continued into the new year, with the overwhelming majority of customers still opting for a variable rate.

“Easily 99% of the applications I’m putting through are variable,” Mr Camilleri said.

“I'm still giving it out as an option for some clients if they just want the comfort, but at the same time, we probably still haven't put a lot of people into fixed rates for a while.”

Rate cut talks reignite market

Borrowers have been piling back into the property market as talks of a looming rate cut revive buyer FOMO, with demand exceeding an influx in new property listings hitting the market.

Preliminary data shows clearance rates held strong in the nation’s auction capitals of Sydney and Melbourne following a Super Saturday, with national auction volumes sitting more than 20% higher than the same time a year ago.

The preliminary auction clearance rate in Melbourne hit 71% last week, and 63% in Sydney according to PropTrack.

National real estate agency Ray White Group recorded an average of five registered bidders and three active bidders per auction over the weekend.

It was Sydney’s first “super Saturday” of the year with more than 1000 auctions. Picture: Julian Andrews

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PropTrack senior economist Eleanor Creagh said buyers may be trying to get in before lower interest rates allow buyers to take on larger home loans.

“Auction clearance rates are sitting close to the highest they've been in the past two years,” Ms Creagh said.

“Probably a lot of buyers in market at the moment are looking towards what's happening next for interest rates and borrowing costs and expecting interest rates to fall possibly in the second half of this year and borrowing costs to decline.”

The RBA’s 13 rate hikes since May 2022 have reduced a typical person’s borrowing power by around 30%, she added.

Originally published at https://www.realestate.com.au/news/borrowers-risk-jumping-on-the-fixed-rate-mortgage-train-too-early/