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Fixed rate demand slips ahead of rate cuts

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Reporter 2 minute read

Borrower demand for fixed rate home loans dropped in March, but rate cuts announced over the past few weeks could reverse the trend.

According to Mortgage Choice’s latest national home loan approval data, demand for fixed rate home loans fell over the month of March, accounting for 21 per cent of all mortgages written, declining by 1.38 per cent from 22.3 per cent in February.

Mortgage Choice CEO Susan Mitchell attributed the decline to uncertainty in the political and economic environment, and the expectation of a cash rate cut from the Reserve Bank of Australia (RBA).

“There is a great deal of uncertainty surrounding the housing market at present, which could be weighing against borrowers’ decisions to commit to a fixed term,” she said.

“The outcome of the upcoming federal election carries potential policy implications that could affect people’s willingness to buy.”

“There is also increasing speculation that the RBA will cut the official cash rate in the short term.”

However, Ms Mitchell said that more borrowers could be opting for fixed rate home loans following rate reductions form several lenders, including the major banks.

“[Lenders] would be acutely aware of borrowers’ reluctance to fix, and have in the last few weeks responded by cutting rates on some of their fixed rate products,” she added.


“Those looking to fix could enjoy great rates right now. Major lenders and smaller lenders alike are attempting to lure borrowers to their fixed rate products by announcing reductions of up to as much as 55 basis points.”

When assessing demand for fixed rates on a state-by-state basis, the Mortgage Choice data revealed that borrowers in NSW were mostly likely to fix their rates (25.7 per cent), followed by Queensland (24.2 per cent), South Australia (18.4 per cent), Western Australia (14.2 per cent) and Victoria (13.6 per cent).

The research also found that ongoing discount variable rate mortgages were the most popular variable home loan product among borrowers nationwide (35 per cent), followed by basic variable rate loans (22 per cent), standard variable rate loans (17.1 per cent), introductory rate loans (3.9 per cent), and lines of credit (0.3 per cent).

“The home loan market is fiercely competitive at the moment, and lenders are actively trying to entice high-quality borrowers with attractive interest rates,” Ms Mitchell added.

“Regardless of what happens to interest rates in the near future, it’s important that borrowers make a decision that meets their immediate and long-term needs.”


Ms Mitchell concluded: “My advice to borrowers who want to hedge out the risk of interest rate changes would be to speak to their local mortgage broker to learn if fixing all or part of their home loan is the right decision for them.”

[Related: Virgin Money announces rate cuts]

Fixed rate demand slips ahead of rate cuts
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