Rate hikes could break variable trend

BORROWERS remain faithful to variable rate home loans for the time being according to data from Mortgage Choice.

According to the Company’s latest national home loan approval data, variable rate home loans accounted for more than 82 per cent of all mortgages written throughout August 2018 – an increase of 0.37 per cent from the month prior, and almost 4 per cent higher than the 12-month average.

Borrowers have enjoyed a sustained period of record low variable rates, Mortgage Choice chief executive officer, Susan Mitchell said.

“August’s national home loan approval data shows that borrowers have continued to opt for variable loans, however, with three major lenders announcing rate hikes in the last two weeks, this could incentivise borrowers to fix,” Ms Mitchell said.

“In recent times, we have seen a number of rate increases which predominantly affected investors and interest-only borrowers. As investors retreated from the market, variable rate home loan products dominated as the preferred product among owner-occupier borrowers who make up the biggest part of mortgage demand.

“However, in the last couple of weeks, three out of the four major lenders announced they would be lifting the interest rates charged on their variable rate loan products due to higher wholesale funding costs. These cost increases will impact owner-occupiers and borrowers who may have been comfortable to ride the variable rate wave, may now look to fix their interest rate in order to protect themselves against further rate rises.”

Ms Mitchell said regardless what type of home loan product a borrower has, if they have not reviewed their loan this year, now is a great time to do so.

“Moreover, those who wish to refinance into a more competitive deal should ensure they are in a healthy financial position in order to improve their chances of having their loan approved. For example, borrowers should ensure they are financially fit and have consistently paid their current mortgage and other debts on time and are able to quantify their current living expenses.”