Bor­row­ers rush to fix loans as lenders cut rates

The Gold Coast Bulletin - - BUSINESS - TIM McINTYRE

IN­TER­EST rate un­cer­tainty con­tin­ues to spook Aus­tralian bor­row­ers, who are rush­ing to lock in their home loans, en­cour­aged by re­cent fixed rate cuts by ma­jor banks.

De­mand for fixed home loans has hit a four-year high, Mort­gage Choice data shows, ac­count­ing for 31.05 per cent of all loans writ­ten in Au­gust. This was up from 29.63 per cent in July, ac­cord­ing to mort­gage Choice CEO John Flavell.

“De­mand is at its high­est level since De­cem­ber 2013, when fixed loans ac­counted for 33.06 per cent of all loans writ­ten,” Mr Flavell said. “Re­cently we have seen a num­ber of Aus­tralia’s lenders cut the in­ter­est rates charged on some of their fixed rate prod­ucts.

“Fixed rate home loans are now very com­pet­i­tively priced, which has made them more at­trac­tive to home­own­ers who are look­ing for re­pay­ment se­cu­rity.”

Queens­land ex­pe­ri­enced the high­est de­mand with 35.48 per cent of loans fixed; a giant leap from the 28.08 per cent recorded the month be­fore. South Aus­tralia was next with 34.4 per cent, while New South Wales saw 33.66 per cent of loans fixed.

Con­sumer com­par­i­son com­pany Canstar has also seen a trend of cus­tomers look­ing for rate cer­tainty, with the num­ber of web­site users who have changed their search from vari­able to fixed rates in­creas­ing by 4 per cent since the pre­vi­ous quar­ter, ac­cord­ing to Canstar fi­nance com­men­ta­tor Steve Mick­en­becker.

“Banks have been us­ing fixed rate loans as their price lead­ers,” Mr Mick­en­becker said.

“Com­par­ing av­er­age pack­age rates for the ma­jor banks for res­i­den­tial prin­ci­pal and in­ter­est loans, the two-year fixed rate is 0.53 per cent be­low the vari­able rate … there is an im­me­di­ate sav­ing en­tic­ing the bor­rower to switch.

“With two year fixed rates … av­er­ag­ing 3.92 per cent and three-year fixed rates av­er­ag­ing 3.97 per cent, fixed rates are al­low­ing the banks to mar­ket loans that are start­ing with a three.”

Lur­ing new cus­tomers with at­trac­tive fixed rate prod­ucts is a way for banks to safe­guard against the ef­fects of up­wards or steady vari­able rates on ex­ist­ing cus­tomer num­bers.

“With the cash rate sit­ting at a record low for 14 months, a fur­ther down­ward move is look­ing un­likely,” Mr Mick­en­becker said.

“This means the risk of a high cost early exit from the loan, if that be­comes nec­es­sary, is rel­a­tively low.

“Pick­ing the bot­tom is al­ways tricky, but rates ap­pear to be near the bot­tom of the cy­cle. It looks like the only way they’ll be go­ing in the medium term is up.”

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