More opting to fix their loans as lenders reduce rates

By Terry Ryder, 11th August 2011

As fixed interest rates for home loans continue to decrease, more borrowers are seeking to secure a fixed term for their mortgage.

Data released this week by the Australian Bureau of Statistics (ABS) shows 3,301 home loans were fixed in June. This compares to 3,148 in May 2011 and was the highest month-on-month increase since December 2010, when borrowers were spooked by the large variable rate increases of November 2010.

Even more significantly, says financial comparison website RateCity, the proportion of fixed home loans was almost double that of June 2010.

Western Australian households had the biggest increase in the take-up of fixed home loans, up 140% in the year to June,  followed by the ACT.

Damian Smith, RateCity’s CEO, says lenders have started competing aggressively in the fixed home loan market. “Most lenders have been dropping their fixed home loan rates steadily this year but we haven’t seen this level of fixed rate movement since the global financial crisis," he says. "We saw 17 lenders drop some of their fixed home loan rates this week alone; the average three-year fixed rate has hit a new low of 7.20%, down from 7.42% in December 2010.

“The Commonwealth Bank’s new rates, especially their three-year fixed rate at 6.59%, are market-leading, and that’s a good thing for borrowers, especially when there’s so much uncertainty in the economy.”

The proportion of fixed-rate home loan applications through RateCity has increased significantly in recent months, comprising 23% of loans compared to 13% in January.

Smith says that while fixed interest rate movements can be an indicator of the direction of the interest rate cycle, there are other explanations for the movement in rates.

“Fixed rate movements are generally good predictors of what lenders think will happen to interest rates, so there’s obviously some possibility that variable rates might go down given the global turmoil," he says. “But in addition to this, lenders are using attractive fixed rates to kick-start a very slow home lending market."

ENDS

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