Appetite for fixed-rate home loans falls in December following rate cut: Mortgage Choice

Demand for fixed-rate home loans tapered off in December following four consecutive months of gains, according to new home loan approval data from Mortgage Choice.

Fixed-rate home loans accounted for 20.14% of all new home loan approvals in December, down from 22.37% in November.

The reduced appetite for these more conservative lending products follows the 25-basis-point RBA cash rate cut on December 5, taking the cash rate to 3% and expectations of further rate cuts in 2013.

Furthermore, the latest mortgage rates published on mortgage comparison websites suggests that borrowers can source variable mortgage rates that are only a few basis points off fixed-rate offerings, with the added benefit of greater flexibility and not being locked into a rate should rates fall further.

Demand for fixed-rates has now fallen below the 12-month average of 21%, with the popularity of fixed-rate loans decreasing in the majority of states, by an average of 4.26 percentage points.

Demand for fixed-rate home loans rose by 4.12 percentage points in Queensland.

Over the same period the percentage of variable-rate loans rose to 79.86% from 77.63% in November, with increased appetite for no-frills basic variable home loans rising by 1.75 percentage points to 17.71%, and ongoing discount home loans remaining the most popular at 41.16% of all new home loan approvals in December.

Demand for standard variable rates was relatively steady, dipping by only 0.12 percentage points to 16.78%. Demand for line-of-credit loans, popular with investors, rose slightly to 3.26%, while introductory rates dropped marginally to 0.95%.

“Our data shows that fixed rates have fallen out of favour in December for the first time in five months as recent variable rate cuts gain the attention of the majority of new borrowers,” says Mortgage Choice spokesperson Belinda Williamson.

“While fixed rate home loans continue to offer piece of mind with a steady repayment level, a variable rate home loan that has the potential to shift down in price is proving more attractive. In fact, four in every five new borrowers say they would opt for this type of loan,” says Williamson.

“Borrowers may also be heeding the advice that there may be more cuts to come, particularly as recent media reports suggests some lenders may cut their home loan rates out of cycle with the Reserve Bank of Australia’s cash rate setting and as soon as next month.”

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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