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Borrowers still opting for variable rates despite hikes

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Reporter 5 minute read

Out-of-cycle rate hikes from non-major banks have not weakened demand for variable rates. However, recent pricing changes from three of the big four could prove otherwise, according to Mortgage Choice.

Mortgage Choice’s latest national home loan approval data has revealed that demand for variable rate home loans increased by 0.37 of a percentage point in August, 4 per cent higher than the 12-month average, with variable rate home loans now representing 82 per cent of all mortgage approvals.

“August’s national home loan approval data shows that borrowers have continued to opt for variable loans; however, with three major lenders announcing rate hikes in the last two weeks, this could incentivise borrowers to fix,” Mortgage Choice CEO Susan Mitchell said.

On a state-by-state basis, variable rate demand was the highest in Victoria, with 87.2 per cent of borrowers opting for this type of home loan, followed by South Australia (86.6 per cent), Western Australia (82.7 per cent), Queensland (81.3 per cent) and NSW (78.4 per cent).


“The fact that a higher proportion of borrowers in New South Wales chose to fix is largely unsurprising when you consider recent data,” Ms Mitchell continued.

“According to CoreLogic’s Housing Affordability Report for the June quarter, Sydney was the nation’s least affordable housing market across three purchasing metrics.

“Moreover, the report showed that affordability in regional NSW has also deteriorated.”

Ms Mitchell added that while investors and interest-only borrowers were the first to be affected by interest rate increases, recent out-of-cycle rate hikes on variable owner-occupied home loans could trigger a rise in fixed rate demand.

“In recent times, we have seen a number of rate increases which predominantly affected investors and interest-only borrowers.


“In the last couple of weeks, three out of the four major lenders announced they would be lifting the interest rates charged on their variable rate loan products due to higher wholesale funding costs.

“These cost increases will impact owner-occupiers and borrowers who may have been comfortable to ride the variable rate wave, [and who] may now look to fix their interest rate in order to protect themselves against further rate rises.”

The Mortgage Choice CEO also encouraged borrowers to review their home loans to ensure that they’re “financially fit”.

“Moreover, those who wish to refinance into a more competitive deal should ensure they are in a healthy financial position in order to improve their chances of having their loan approved,” Ms Mitchell said.

“For example, borrowers should ensure they are financially fit and have consistently paid their current mortgage and other debts on time and are able to quantify their current living expenses.”

[Related: 60% of non-conforming borrowers don’t get a loan]

Borrowers still opting for variable rates despite hikes
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