Fixed rate home loans remain unpopular: Mortgage Choice's Susan Mitchell

EXPERT OBSERVATION

Demand for fixed rate home loans was stable in October, reveals data from Mortgage Choice.

According to the Company’s home loan approval data, demand for fixed rate home loans has stalled, accounting for 14% of all home loans written throughout the month of October, the same proportion as the month prior.

Our home loan data reveals that despite extremely competitive fixed-rate pricing, borrowers are reluctant to lock in a fixed rate. The level of demand for fixed rate home loans has not changed in four months and is significantly lower year on year. In fact, fixed rate loans accounted for a quarter of all home loan demand in October 2018.

In the current low-rate environment, we are seeing interest rates on fixed-rate home loans fall below 3% p.a., which makes it even more surprising to see fixed rate demand hover at levels not seen in eight years.

That being said, speculation is rife that the Reserve Bank of Australia will cut the cash rate a fourth time this cutting cycle, which would be reason enough to keep borrowers from locking in.

Demand for fixed rate loan products varied across the country. Borrowers in Victoria were the least likely to fix, with only 7% of borrowers locking in their rate, followed by Western Australia where 8% locked into a fixed rate product.

Meanwhile, borrowers in New South Wales were the most likely to choose a fixed interest rate home loan, with 18% choosing this loan, followed by borrowers in South Australia, where 17% chose to fix.

I suspect fixed rate demand is likely to remain at the same levels into the new year.

With such low interest rates on offer, now could be a great time to lock into a fixed rate home loan or make the decision to fix part of your home loan so can enjoy the best of both worlds. Ultimately, the answer to the fixed versus variable debate will come down to each borrower’s unique financial situation, needs and long-term goals.

My advice to borrowers who foresee a change to their income or face the possibility of budget constraints would be to speak to their mortgage broker. If you seek the comfort of knowing that you will have home loan repayment certainty, a fixed rate loan might be the right option for you.

That being said, if you want to take advantage of rate drops, a variable rate home loan might be a more suitable choice. We have seen variable rate home loan interest rates fall significantly off the back of three cash rate cuts from the Reserve Bank of Australia. If the RBA cuts the cash rate again, we could see variable rates drop even further.

Borrowers who are deciding whether to opt for a home loan with a variable, or a fixed interest rate would be well advised to speak to their local mortgage broker to discuss their options.

SUSAN MITCHELL is the Mortgage Choice Chief Executive Officer