Fixed rate loans demand at two-year low

3rd June 2008

Borrowers are shunning fixed rate loans, with demand falling to its lowest level in more than two years, Mortgage Choice said.

Demand for fixed rate loans fell by 13 percentage points in April, to 21 per cent, according to the company's housing loan approval data.

Greater variable loan products and the higher pricing of fixed rate mortgages encouraged borrowers to take variable loans, Mortgage Choice National Corporate Affairs manager Warren O'Rourke said.

"Some borrowers were either chasing the discounts on variable products or, are more comfortable about the direction of interest rates," Mr O'Rourke said.

Interest rate futures were predicting the Reserve Bank of Australia (RBA) was nearing the end of its cycle of raising interest rates.

The RBA has raised the official cash rate 12 times since May 2002, to a near 16-year high of 7.25 per cent, with the last two rises in February and March this year.

Demand for fixed loans hit a high of 38 per cent this February, according to Mortgage Choice data.

Mr O'Rourke said some borrowers wanted security from fixed rate loans, despite their higher costs.

"There are still consumers fixing just for the peace of mind that a fixed rate loan provides," he said.

"Others are hedging their bets, choosing to fix a portion of their loan to give them some security."

Standard variable home loans increased to 47 per cent of all approved loans, above the 12-month average of 38 per cent, Mortgage Choice said.

Queensland and South Australian had the biggest falls in the month, 17 and 18 percentage points respectively, Mr O'Rourke said.

"Queenslanders and South Australians appeared until recently more concerned about an unsettled interest rate climate than their interstate counterparts," he said.

"However, both have fallen in line with national trends in April."

Approvals for basic variable loans rose to nearly 20 per cent, just below the 12-month average of 21 per cent, but higher than the six-months average of 18 per cent.

© Your Investment Property. magazine. Reproduced with permission. To read more Investment news from Your Investment Property, go to www.yipmag.com.au or pick up a copy from your local newsagent today.

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