Fixed-rate mortgage demand reaches four-year high: ABS

Demand for fixed-rate mortgages soared to a four-year high in March as customers took advantage of an extremely competitive market and low fixed rates on offer.

Analysis of ABS housing finance data by CommSec shows that nearly 15% of home loans taken out in March were on fixed-rate terms, the highest proportion since April 2008, when fixed rate mortgages accounted for 19% of all home loan commitments.

CommSec chief economist Craig James says “home loan buyers clearly are shopping around for the best deals, and that may mean more cocktail loans – part variable, part fixed (known as a split loan)”.

Borrowers are also taking advantage of fixed rates that are currently, on average, lower than variable-rate mortgages.

According to research by mortgage comparison website RateCity.com.au, the average three-year fixed rate is 6.24%, compared with the standard variable mortgage rate average of 6.74%.

RateCity.com.au lists IMB Building Society’s three-year fixed rate product, which has an interest rate of 5.89% as the lowest rate in the market, followed by the Greater Building Society at 5.95%.

Lenders to have cut their fixed-rate mortgages recently include ME Bank, which cut its three-year fixed rate on the Super Member Home Loan to 5.99% on May 7.

Towards the end of April Westpac brands Rams, Bank of Melbourne and St George all cut their three-year fixed-rate products to 5.99% (the two banks for a limited time).

The growing appeal of fixed rate mortgages was foreshadowed in March Mortgage Choice figures (released in April), which found that the popularity of fixed-rate loans among its borrowers had jumped to a four-year high.

Fixed-rate loans accounted for 26% of approved home loans written by Mortgage Choice mortgage brokers in March, up from 20.6% in February and well above the 12-month average of 17.7%.

At the time, Mortgage Choice spokesperson Belinda Williamson attributed the increase in demand for fixed-rate mortgages to concerns over that the Reserve Bank might increase the cash rate or lenders moving their interest rates independently of the central bank.

“Borrowers’ appetites for fixed-rate loans may have also been spurred on by competitive lender pricing,” Williamson added.

In April 2008 borrowers locked in fixed rate mortgages as the cash rate climbed to 7.25%, the highest rate since December 1994, following six years of incremental rate increases.

However, borrowers that switched to fixed-rate products in April 2008 were severely stung as the RBA entered into a big rate cutting cycle soon after  (starting in September 2008) to counter the effects of the GFC, reducing the cash rate from 7.25% to a record low of 3% by April 2009.