Variable-rate mortgage demand rises for third straight month: Mortgage Choice

Demand for variable-rate mortgages rose for the third straight month, according to June figures from Mortgage Choice, accounting for 82% of all mortgages arranged by Mortgage Choice brokers over the month.

The figure represented a nine-month high for Mortgage Choice, with demand for variable rate loans now above the 12-month average of 80%.

At the same time demand for fixed-rate loans fell from 21% to just 18% of all loan approvals – below the 12-month average of just under 20%.

Source: Mortgage Choice

According Mortgage Choice spokesperson Belinda Williamson, borrowers may be able to negotiate a variable rate below that of fixed-rate offerings.

“Our extensive lender panel, which consists of major and smaller banks, non-bank lenders, credit unions and building societies, currently has an average three-year fixed rate loan at 6.22%. In comparison, the average standard variable rate is 6.79%,” she says.

However, Williamson says it is possible for borrowers to negotiate a discount on their standard variable interest rate to below 6% in some instances, usually in return for an annual fee.

Ongoing discount variable rate loans were the most popular variable rate loan in June, accounting for two out of every five loans arranged by Mortgage Choice loan writers.

“It goes to show there are competitive deals on offer for new borrowers as well as those looking to refinance,” Williamson says.

“The end of the financial year brought with it an air of optimism around the direction of interest rates, as a growing number of home loan borrowers – more than one in four – chose variable rates.

“Perhaps whispers of one more rate cut in coming months is wielding influence.”

The second most popular loan type for June was basic variable rate, at 19.1%, closely followed by standard variable rate, at 18.6%.

The popularity of line-of-credit home loans rose by just over one percentage point to 3.8% of approvals, with borrowers showing no appetite for introductory rate loans.

Despite this, Macquarie Bank today said it would offer its Classic, Premium and Line of Credit loans at a discounted rate of 5.85% for the first 12 months for all eligible applications settled on or before September 28, 2012.

The falling demand for fixed-rate loans has also been noted by Ray White’s mortgage broker Loan Market, with customer enquiries for fixed-rate mortgages falling to around 15% of total home loan enquiries since the RBA cut the cash rate by 75 basis points in May and June.

Fixed-rate products had spent the majority of 2012 around a full percentage point below variable rates, however with a downward outlook on rates, lenders aren’t shifting fixed rates parallel to variable rates, according to Loan Market spokesperson Paul Smith.

“The feedback from consumers shunning fixed rates is that they’re convinced home loan rates have further to drop and that they’re anticipating a period of prolonged low interest rates,” he says.

However, some brokers are still encouraging borrowers to consider a fixed-rate product.

John Kolenda, managing director of mortgage broker network 1300 Home Loan, says home owners should consider switching to a fixed-rate home loan to take advantage of historically low interest rates.

Kolenda says fixed rates are now available for as little as 5.74% over a three-year fixed term, 30 to 40 basis points below average discounted variable rates.

“Lenders are clearly pricing in further interest rate cuts due to global economic weakness,” he says.

However, if history is a guide, the window of opportunity for locking in a low fixed-rate home loan is likely to be short lived, he says.

“No one can be confident of picking the exact bottom of the cycle, but this is certainly not a bad time to look at fixing.”

Kolenda says borrowers can also manage their interest rate exposures by splitting their loans between fixed and variable.