Demand stalls for fixed rates

The figure has remained stable for the last four months; however, numbers are down significantly year-on-year.

According to the data, the demand for fixed rates varied across the nation, with borrowers in Victoria the least likely to fix, with just 7 per cent doing so in October, followed by Western Australia, which saw 8 per cent lock in to a fixed rate product.

Meanwhile, customers in NSW were the most likely to choose a fixed rate home loan, with 18 per cent doing so, followed by South Australia, with 17 per cent of borrowers choosing a fixed rate.

Mortgage Choice CEO Susan Mitchell said that despite a competitive fixed rate market, borrowers are now less inclined to lock in a fixed rate, as they hold out for further potential rate cuts.

“Our home loan data reveals that despite extremely competitive fixed rate pricing, borrowers are reluctant to lock in a fixed rate,” Ms Mitchell said.

“The level of demand for fixed rate home loans has not changed in four months and is significantly lower year-on-year. 

“In fact, fixed rate loans accounted for a quarter of all home loan demand in October 2018.

“In the current low rate environment, we are seeing interest rates on fixed rate home loans fall below 3 per cent p.a., which makes it even more surprising to see fixed rate demand hover at levels not seen in eight years.

“That being said, speculation is rife that the Reserve Bank of Australia will cut the cash rate a fourth time this cutting cycle, which would be reason enough to keep borrowers from locking in.”

Ms Mitchell said she expects fixed rate demand to continue at this stable, low figure into the new year, although she advises that this could be an ideal opportunity for borrowers to lock in a low fixed rate.

She commented that “with such low interest rates on offer, now could be a great time to lock in to a fixed rate home loan” or fix part of a home loan. She added, however, that “ultimately, the answer to the fixed versus variable debate will come down to each borrower’s unique financial situation, needs and long-term goals”.

The Mortgage Choice CEO therefore urged borrowers who foresee a change to their income (or face the possibility of budgetary constraints) to speak to their mortgage broker. 

She continued: “We have seen variable rate home loan interest rates fall significantly off the back of three cash rate cuts from the Reserve Bank of Australia. 

“If the RBA cuts the cash rate again, we could see variable rates drop even further.

“Borrowers who are deciding whether to opt for a home loan with a variable, or a fixed interest rate would be well advised to speak to their local mortgage broker to discuss their options,” Ms Mitchell concluded.

[Related: Concern raised as lending commitments continue to rise]