More Home Loan Applicants Prefer Stability Offered by Fixed Rates
More and more Australians are opting for fixed home loans as the Australian Bureau of Statistics (ABS) reported this week that fixed mortgage soared to 11.1 percent in November just weeks after the central bank pushed back the country's cash rate.
Mortgage brokers confirmed that from the spike of 10.6 percent seen in October, the number of housing loans jumped significantly as lenders recorded double-digit upswings following just below nine percent gains in the prior six months.
Best performer so far is New South Wales, which according to BusinessDay, posted a 24 percent hike in new home loans as compared to the 20 percent average registered by lenders across Australia.
It is likely that the December figures went the same way in the previous month, analysts said, as Australians, most notably first home buyers, came to realise "that fixed rates have become better value ... it's becoming cheaper to grab the bird in the hand."
For the past few months, the lure of fixed loan rates attracted more takers, according to UBS analyst Scott Haslem, mainly because they presently offer more premium and flexibility, proof of which is the better rates available as compared to what were seen by the end of last year's second half.
From the 7.35 percent interest rate carried by three-year mortgage in June, the level plunged to 6.4 percent, Haslem noted, creating a scenario, he added, that paints more stability on fixed rates as compared to the ones seen on adjustable loans last year.
And with more rate cuts set to be unleashed by the Reserve Bank of Australia (RBA) this year, fixed loans seem to emit better prospect for mortgage applicants, which is a trend that has become the trend worldwide.
Weakening inflation and other financial concerns have spurred some countries' central banks to slash their cash rates, analysts said, which in turn shored up banks ability to fund higher numbers of lower fixed rates.
Because of lower interest rates "banks are able to cut their two to three-year loans because the cost of two to three-year money has gone down," Haslem said.
"You would have to expect four more rate cuts over three years to make the variable rate look better than fixed, and even then you would have to expect the lower variable rates to hold for three years," Haslem added.
And as banks accommodate adjustments to process more fixed loan applications, analysts suggested that the trend does not necessarily mean that a wave of mortgage takers will fiercely compete for lenders' attention.
But the uptick in the number of fixed loans is somewhat selective as buyers appear to prefer existing structures instead of building from scratch.
In November alone, new home loans increased by 2.5 percent while loan application for home construction declined by 0.4 percent, BusinessDay wrote, highlighting a steady retreat that started in September.
According to CommSec chief economist Craig James, loan applicants have become more cautious of their finances as shown by the amount of loans that lenders approved but applicants decided to scuttle anyway, which jumped to 11 percent last year.
"Real estate agents will love the fact that more people are interested in established properties ... but home buyers are actually pretty cautious ... they are getting their finance in place, then waiting," James told BusinessDay.