Fixed rates could be making a comeback: Mortgage Choice

The brokerage believes this could indicate a shift in borrower preference, though CEO Susan Mitchell acknowledged that variable rate home loans remain the most popular type of mortgage product across Australia.

Ms Mitchell said that a convergence of factors — including an increase in wholesale funding costs, regulatory changes and tightening lending policies — is impacting the overall cost of borrowing.

“Cautious borrowers who recently entered the market may be aware that, despite a stagnant cash rate, lenders are increasingly making small, out-of-cycle rate increases on home loan products,” the CEO said.

“These factors are pushing some borrowers, who are increasingly wary of the financial impact from future rate rises, to seek certainty by fixing their home loans.”

The CEO suggested the possibility that more borrowers will be able to fix their mortgages in the upcoming months.

“In a complex lending environment, I would encourage prospective buyers to enlist the help of a qualified mortgage professional, who can help them navigate the home buying process,” Ms Mitchell said.

“I would also encourage those who have not reviewed their home loan in the last 12 months to do so as soon as possible, as they may be able to switch to a better deal.”

Contrary to Mortgage Choice’s findings, finder.com.au recently claimed that borrowers are reluctant to apply a fixed rate to their mortgage amid the record low cash rate of 1.5 per cent.

“The fact that the cash rate remains at a historical low with no change in almost two years indicates that there’s less urgency among Aussie home owners to lock in a rate. They’ve been riding this wave for a while now; however, the tide could be turning,” money editor for finder.com.au Bessie Hassan said.

Recent data from the Australian Bureau of Statistics (ABS) showed that the portion of borrowers that applied a fixed rate to their home loan dropped to the lowest level since September 2016 (11.2 per cent), from 13.2 per cent in April to 12.1 per cent in May.

Rate changes

In recent weeks, several non-major lenders — including Macquarie Bank, AMP, ING, Bank of Queensland, Heritage Bank and Auswide Bank — announced rate increases to their variable rate home loan offerings, with most attributing their decision to a rise in wholesale funding costs.

However, most of the aforementioned lenders, including Macquarie and AMP, have reduced rates on their fixed rate loans.

Conversely, Teachers Mutual Bank recently revealed that it would raise its fixed rates, crediting its decision to “increased market pressures” that continue to bite the non-majors.

Earlier this year, the CFO of Auswide Bank, Bill Schafer, attributed its own rate increases to a sharp rise in the bank bill swap rate (BBSW).

“Our funding costs have risen significantly in the last four months,” Mr Schafer told The Adviser sister title Mortgage Business.

“The BBSW — the 30-day rate and the 90-day rate — has had a large effect on our wholesale funding lines, and they’ve increased by between 30 and 35 points since the beginning of March, so that’s had a substantial effect on our net interest margin.

“We’ve been trying to absorb that across that period of time, with the hope that those costs would be relieved and the BBSW rates would decline, but now we’re nearing the end of the fourth month, we’ve taken the decision that the impact on our net interest margin is too severe, and unfortunately we needed to do an out-of-cycle rate increase.”

[Related: Lenders hike rates as funding costs spike]