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Victorians continue to lead variable rate mortgage drive

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Reporter 7 minute read

Mortgagors in Victoria are continuing to drive demand for variable rate home loans, while Western Australians are eschewing the product for fixed rates, new figures from Mortgage Choice have revealed.

According to the brokerage’s latest national home loan approval data, variable rate home loans accounted for 88.1 per cent of mortgages in Victoria in July 2018, the highest of any state.

This marked the seventh consecutive month that variable rate demand was highest in this state.

The trend is in contrast to that of WA, where the fewest were opting for a variable rate product. Less than three-quarters of mortgagors using Mortgage Choice brokers chose a variable rate in July 2018. Instead, 23.03 per cent of borrowers in the state chose to fix their home loan rates.


Those in NSW also had a higher percentage of borrowers choosing to fix their home loan rates (21.5 per cent of borrowers choosing to do so), while just over 14 per cent of South Australians did so.

Speaking of the figures, Mortgage Choice CEO Susan Mitchell noted that she was “not surprised” to see borrowers in NSW continue to opt for fixed rate home loans, given that recent figures show the city of Sydney recorded the highest median dwelling value in the nation in June (at over $870,000).

However, the CEO warned: “Borrowers in New South Wales are wary and would be acutely aware of the relationship between high debt levels and the implication of interest rate rises.

“Fixing their interest rates gives them certainty on their repayments.”

Ms Mitchell continued: “Interestingly, borrowers in Victoria do not appear to be as cautious. Consensus in the market is that interest rates will remain stable for the foreseeable future, which would encourage borrowers in Victoria to consistently opt for a variable rate product.”

Variable rate demand on the rise again


On a national level, 81 per cent of all mortgages written throughout July 2018 by Mortgage Choice brokers were variable rate home loans, an increase of 0.48 of a percentage point from the month prior, and more than 4 per cent higher than the 12-month average.

“June’s national home loan approval data bucked the 11th month trend as fixed rate demand rose slightly; however, July’s data confirms that borrowers are dedicated to variable rate products,” Ms Mitchell said.

“Borrowers across Australia have enjoyed a low-rate environment for such a sustained period that there is little incentive to fix.”

Looking ahead, Ms Mitchell said that she does not expect a significant change in borrower preference in the short term, suggesting that the official cash rate may remain on hold until “at least next year”.

She added that borrowers who had not reviewed their loan recently should contact a broker to do so.

Fixed rate demand falling

While the brokerage last month suggested that demand for fixed rate loans could be on the rise, other reports and commentators have suggested 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.

Indeed, 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.

However, there have been some expectations that demand could rise again given that many lenders have recently announced rate increases to their variable rate home loan offerings, with most attributing their decision to a rise in wholesale funding costs. Further, most of the aforementioned lenders, including Macquarie and AMP, have reduced rates on their fixed rate loans.

[Related: Fixed rates could be making a comeback: Mortgage Choice]

Victorians continue to lead variable rate mortgage drive
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