Borrowers rushing to lock in low rates

Homeowners are looking to take advantage of trimmed interest rates, writes Tim McIntyre

UNCERTAINTY around future interest rate movements has sparked action from borrowers, with Mortgage Choice reporting fixed rate product demand has hit a three-year high.

The company’s latest national home loan approval data found fixed rate loans accounted for 29.63 per cent of home loans written throughout July. This represented the highest percentage since the last peak of 33.06 per cent in December 2013, Mortgage Choice CEO John Flavell said.

“The surge in popularity for this type of product does not come as much of a surprise when we look at what’s been taking place in the market in recent weeks,” Mr Flavell said. “A few of Australia’s lenders have lowered the interest rates charged on some of their fixed rate products, with some trimming up to 10 basis points from their four and five-year rates … many fixed rate home loans now on offer are very competitive.”

Last Tuesday’s monthly meeting saw the RBA leave rates on hold once again, marking a full year since the most recent lowering of the official cash rate. Many borrowers are under the impression it is only a matter of time until rates begin to go up and independent increases by major lenders along with a crackdown on interest only loans have only fuelled that speculation.

“Some lenders have significantly increased their interest only pricing across both their investment and owneroccupied products.

These changes have helped make the mortgage market more complex than ever before,” Mr Flavell said.

“Subsequently, borrowers wanting certainty and security over their repayments for a set period of time are increasingly turning to a fixed rate mortgage.”

STATE OF DEMAND

Western Australian borrowers showed the most demand for fixed rate loans at 35.77 per cent, followed by New South Wales (33.59 per cent) and Queensland (28.08 per cent).

Smartline mortgage adviser Scott McCray said borrowers are realistic about the longevity of rates at historic lows and are also being encouraged away from interest only loans by regulators. “People are now considering fixed rates. They know we are at record lows in home loans and they are not expected to stay low forever,” Mr McCray said. “Another factor is the government is trying to slow the property market by restricting the number of investors in the market. All banks have tightened their lending policies, making it difficult for people to own more than one or two properties. The banks have been set targets by APRA.”