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Fixed rate demand slips amid rate cut speculation

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Reporter 5 minute read

Fewer borrowers are opting for fixed rates amid growing speculation of a cut to the official cash rate, according to the latest research from Mortgage Choice.

Mortgage Choice’s latest national home loan approval data has revealed that demand for fixed rate home loans fell over the month of February, accounting for 22.8 per cent of loans, down from 23.8 per cent in January and below the six-month average of 23.4 per cent.

The Mortgage Choice research also found that on a state-by-state basis, borrowers in Queensland were the most likely to fix their interest rate, with over 25 per cent opting for a fixed rate home loan, followed by NSW (24 per cent), South Australia (22 per cent), Western Australia (20 per cent) and Victoria (17 per cent).

According to Mortgage Choice CEO Susan Mitchell, the decline may be attributed to cash rate expectations and the continued fall in home values.


“Mounting speculation that the Reserve Bank may cut the official cash rate later this year may be weighing on borrower expectations around interest rates,” Ms Mitchell said.

“These borrowers, who are expecting interest rates to fall in the near term may be less inclined to lock in to a fixed rate.”

She added: “Borrowers’ caution may be compounded by continued property price falls in the nation’s capitals, which, according to the latest figures from CoreLogic, fell 0.9 per cent in the month of February.

“In the current property market, it is unsurprising to see an increase in demand for variable rate loan products. These loans are more flexible and allow borrowers to make added loan repayments, access home loan features such as an offset account and redraw facility, and of course save on their loan repayments if their interest rate drops.”

However, the brokerage CEO noted that fixed rate mortgage products remain an attractive option for borrowers looking for certainty in their home loan repayments. 


“This is particularly important at a time when there is considerable uncertainty in the market,” she said.

Ms Mitchell also said that fixed rate loans may be a suitable option for borrowers who foresee a potential change to their income or face budget constraints.

“At present, there are many deals to be had for those looking to lock in a fixed rate, with two-year fixed-rate loans on our lender panel as low as 3.69 per cent p.a. so it’s a great time to review your home loan,” she continued.

“My advice for anyone looking to have the best of both worlds is to speak to their mortgage broker about splitting their loan, which allows a borrower to allocate a proportion of the loan to a fixed interest rate, and a proportion to a variable interest rate depending on their financial situation.”

[Related: Rebound in housing finance ‘unlikely’ as slump continues]

Fixed rate demand slips amid rate cut speculation
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