Price, not rate fears, driving fixed-rate mortgage spike: UBS's Scott Haslem

Demand for fixed-rate home loans is spiking because the products have become much cheaper than variable-rate mortgages, according to UBS.

Traditionally borrowers take out a fixed-rate loan to give them certainty about future interest rate payments when interest rates are likely to rise, but according to UBS interest rate strategist Scott Haslem demand is being driven the low fixed rates on offer.

"It doesn't mean people think rates will rise and it doesn't even mean they don't expect them to fall again," he tells Business Day’s Peter Martin. 

“It's just that fixed rates have become better value – it's becoming cheaper to grab the bird in the hand."

The most recent ABS housing finance data for November shows that fixed-rate loan approvals reached 11.1% (up from 10.6% in October) of all loans, their highest proportion since November 2008 at the height of the global financial crisis.

December data from mortgage brokers Mortgage Choice and AFG show an even greater uptake of fixed-rate borrowers (24% and 19% respectively), indicating that fixed-rate approvals will rise again when December ABS figures come out in February.

According to mortgage comparison RateCity.com.au, about 70% of lenders cut their fixed rates last year with the average three-year fixed rate falling to just 6.29% in December, and one-year fixed rates falling to 6.27%.

While the standard variable rate has also fallen mainly as a result of official RBA rate cuts in November and December, the average rate is 6.89%, more than half a percentage point higher than the average fixed rate.