Fixed-rate activity at ‘lowest level’, finds AFG

The data, which revealed the home loan activity behaviours of its 3,200+ broker network, has shown that fixed-rate activity this financial year is at the lowest level ever reported in the AFG Index (which goes back over 10 years).

In the three months to December 2022, just 4.8 per cent of loans written by AFG brokers were for fixed-rate mortgages. In the quarter before, this was even lower at 3.6 per cent. As such, fixed-rate activity for the financial year so far has been at its lowest level since AFG began reporting these figures.

Noting the trend, AFG chief executive David Bailey commented: “Fixed rate volumes were 34.0 per cent at this time last year, they now sit at 4.8 per cent and were 3.6 per cent last quarter. 

“Fixed rate activity this financial year is at the lowest level ever reported in the AFG Index. The last time Fixed Rate volumes were in single digits was 2011.”

The AFG broker stats echoed a trend noted in the recent lending indicators data from the Australian Bureau of Statistics (ABS). The ABS has previously found that there were just $2.4 billion of fixed-rate loans written in November 2022 (the most recent data available), down from $25 billion the same month in 2021.

The drastic drop in fixed-rate loans comes after several interest rate hikes by the Reserve Bank of Australia (RBA). By the end of 2Q23, the RBA had hitched the official cash rate up for eight consecutive months — raising it from its emergency setting of 0.10 per cent to 3.10 per cent.

With the official cash rate expected to increase again this month (when the RBA board meets on 7 February) and potentially again in March, most borrowers are now wary of locking in a fixed-rate loan with relatively high interest and instead turning to variable loans to take advantage of lower rates and added flexibility.

However, lending volumes on a whole have been falling as interest rates rise and serviceability tightens. 

The AFG index showed that home lending volumes fell 18.4 per cent in 2Q23 when compared to the same period the previous year.

AFG mortgage brokers lodged $20.1 billion for the quarter; the lowest quarterly lodgement figure for two years (2Q21).

The largest falls in mortgage activity were in the eastern seaboard — which had been benefiting from a boom in property activity in FY22 — with NSW volumes falling 23 per cent when compared to 2Q22, followed by Queensland (19.6 per cent) and Victoria (18.3 per cent).

Indeed, the average loan sizes have been falling as property prices fall from their peaks, with the average loan size dropped by almost $24,000 on the same period last year. However, the average loan size is still elevated at historic levels at $600,149.

According to the AFG CEO, the” dramatic increase in interest rates since May 2022 has slowed the market”. 

“The Christmas period is traditionally quieter, however natural disasters, global uncertainty and rising prices have had, and will continue to have, a substantial impact on household budgets,” he said.

“The challenge for the central bank is to reduce inflationary pressures without stalling the economy.” 

[Related: The Word: What trends do brokers expect to see in 2023?]