Fixed-rate mortgage demand surges to record high: AFG

Fixed-rate mortgages accounted for a record 25.4% of all loans written by AFG mortgage brokers in March as uncertainty over where interest rates are heading compelled borrowers to fix rates.

According to the latest AFG Mortgage Index, demand for fixed-rate products increased from 23.2% in February and 18.6% in January and has been above 16% since September 2011.

In March 2011, fixed-rate mortgages accounted for just 6.6% of all loans written by AFG mortgage brokers.

The record proportion of fixed-rate loans written in March 2012 was just higher than the 25.3% achieved in February 2008, which followed a period of RBA monetary policy tightening with three 0.25% cash rate increases between August and February 2008 taking the official rate to 7%.

“The reason that fixed-rate home loans are at such record highs is quite simply because many borrowers are concerned about the future of interest rates,” says Mark Hewitt, general manager of sales and operations at AFG. 

“This nervousness probably also accounts for the weighting of investors in the property market – there’s a lot of them proportionally because first-home buyers and upgraders are sitting on their hands.” 

The AFG Mortgage Index also shows that for the second month in a row, the average new home loan across Australia was above $400,000 ($404,000 in March). 

However, loan-to-valuation ratios remain steady at just under 68%, “indicating that buyers are not taking on greater levels of debt to fund their purchases”.

AFG says this also reflects the market’s large proportion of investors, who typically use equity in one property to help pay for another. 

“There’s a disconnect between what’s happening in the non-mining economy – which is most of us – and out of cycle rate rises. 

“The best thing the RBA could do to stimulate confidence among buyers and upgraders would be to cut interest rates tomorrow,” says Hewitt. 

The AFG Mortgage Index also shows a clear divide in the drivers of mortgage markets in the Eastern and Western seaboards with investors continue to dominate the NSW market, accounting for two out of five new mortgages and lower levels in Victoria (just under 40%) and Queensland (one third of all loans). 

In WA, a reduction in investor interest has been supplanted by a rise in first-home buyers. 

First-home buyers are more active in WA than any other state, comprising 20% of the mortgage mix, far outstripping their share of NSW (on 13.4%), Victoria (15.2%) and the more affordable Queensland market (16%).