Borrowers choose flexibility over certainty: Mortgage Choice

EXPERT OBSERVER

Borrowers continue to choose variable rate home loan products as demand for fixed rate home loans fell for the eigth consecutive month.

Variable rate home loans accounted for over 82% of all home loans written throughout May 2018 – up over 2% from the month prior, and almost 7% higher than the 12-month average.

This trend will continue as borrowers develop apathy towards the Reserve Bank of Australia’s stagnant cash rate.
 
Indeed, we continue to see borrowers opt for the flexible nature of variable rate home loans which may offer a redraw facility, offset accounts and the ability to make extra repayments. These features are not typically associated with fixed rate loans.

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While a fixed rate product provides repayment certainty, variable home loan rates have been relatively stable for a prolonged period of time giving borrowers little incentive to fix.

This week’s Housing Finance data from the Australian Bureau of Statistics found that 52,116 home loans were approved throughout April, down 1.4% from the previous month.

Unsurprisingly, the value of investment loans dipped somewhat, falling 0.9% to $10.7 billion in April, which could reflect tighter lending standards and serviceability policies. However, May data may show an increase in investment loans following APRA lifting the cap on investor loan growth at the end of April.

ABS data also shows the value of owner-occupied housing loans in April rose just 0.2% to $20.9 billion.

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The data also showed, in original terms, the number of first home buyer commitments as a percentage of total owner-occupied housing finance commitments rose to 17.6% in April 2018 from 13.7% in January 2018.

This increase is significant and first home buyers seem to be propping up the market.
   
Looking ahead, I expect to see a combination of factors, such as historically low interest rates, easing property prices and access to FHOGs, to maintain home loan demand - whether variable or fixed - but preparation is key.
 
With increased scrutiny on lending practices, buyers looking to secure housing finance should take practical steps to improve their serviceability and speak to their local mortgage broker, who can help take the guesswork out of the process and find the right financial product for their personal circumstances.

Susan Mitchell is the CEO of Mortgage Choice.