Fixed rate loans at year low, despite rates creeping up: Finder
With the Reserve Bank expected to, once again, keep the official cash rate on hold today, it comes as little surprise that borrowers are looking towards variable rather than fixed home loans.
Finder.com.au said that of 10 economists they surveyed there was a unanimous prediction of no rate change today. This is consistent with Property Observer’s own recent panel survey, which saw experts unanimously predict 'no change' for February and to suggest that any changes would be a way into the future.
Money expert for Finder, Michelle Hutchison, said that this was causing borrowers to ride out the low variable rate wave. However, she urged that fixing your home loan may save you money over the long term.
“With every economist in our survey expecting that the Reserve Bank will leave the cash rate at 2.50% next week, and home loan interest rates at record lows, it's no wonder we're seeing borrowers sticking with variable rates,” said Hutchison.
She pointed to the proportion of fixed rate home loans being at its lowest levels in the past year, at 16.8% in December 2013, based on Australian Bureau of Statistics’ Housing Finance data.
“There has been a decline in the number of fixed loans financed, with a drop of 17% since its peak in May 2013, when the number of fixed loans financed reached a five-year high of 10,631,” she said.
Higher demand is also being seen across their site for variable home loans, with traffic to these products up 15% since July 2013.
“The biggest concern is that fixed rates are starting to rise and borrowers may miss out on securing a low rate if they want to fix their home loan later,” she said.
The average three-year fixed rate has increased by 0.16% to 5.11% since September 2013, remaining lower than variable rates which, on average, sit at 5.39%.
“For a $300,000 home loan, borrowers could potentially save almost $2,000 in three years by fixing at the average rate of 5.11% compared to the average variable rate of 5.39%,” she said.
In a Property Observer panel of experts, borrowers were urged by the majority to consider fixed rates.
No change is also expected by AMP Capital's Shane Oliver, as he expects rates to be on hold for the sixth meeting in a row.
"The RBA has clearly indicated that with growth remaining low but tentative signs of improvement in some indicators, a period of stability in interest rates is appropriate. Since not enough has really changed since the last meeting, this remains the case. Soft jobs news and the poor business investment outlook do suggest though that our expectation for rate hikes to commence later this year may be premature with the risk being that they won't occur till next year.
"Governor Steven’s Parliamentary testimony (Friday) will be watched closely for his views on the jobs and investment front," he wrote in his most recent market roundup.