Big Price Discounts Fail to Boost Fixed Rate Demand
Demand for fixed-interest rate home loans increased by less than 1 percent of approvals over August despite lenders offering large reductions, one of Australia’s largest independently owned mortgage brokers report.
Fixed rates accounted for 14.1 per cent of Mortgage Choice’s home loan approvals last month, up only slightly from 13.3 per cent in July (though rising for the third consecutive month), while the popularity of ongoing discount loans continued its steady increase, up from 38.6 per cent to 41.5 per cent of approvals.
Company spokeswoman Kristy Sheppard said, “New borrowers’ appetite for ongoing discount home loans has steamed ahead for 10 consecutive months now. We have reached a point where demand for such mortgages is more than double that for any other, at 41.5 per cent of all our August approvals.”
“This loan type, where the interest rate is discounted over the loan term, usually in return for an annual fee, overtook standard variable as the favourite in April and hasn’t looked back. The trend speaks volumes about new borrowers’ and refinancers’ mindset around interest rate rises and the value they place – or rather, don’t place – on locking in their rate at the moment.
“I expected the take-up of fixed rate home loans to grow noticeably in August due to the well publicised reductions many lenders have been applying to their fixed term pricing. Despite our lender panel’s average three-year fixed rate falling half a percent in the past four weeks alone, fewer than one in seven new mortgage holders fixed part or all of their rate last month.
“Borrowers’ reticence to fix may also be influenced by memories of the break costs many people faced when considering switching out of their fixed terms during Spring 2008 to Autumn 2009 when the cash rate fell from 7.25 per cent to 3.00 per cent and home loan interest rates followed.
Demand for standard variable and basic variable home loans fell in August, to 19.2 per cent and 18.2 per cent of approvals, as did that for line of credit and introductory rate loans, to 4.7 per cent and 2.4 per cent.