Fixed Interest Flatline
Enquiries for fixed interest rate mortgages have flat-lined since the Reserve Bank of Australia (RBA) lowered official interest rates to 3.5 per cent, says leading mortgage broker Loan market
Loan Market Corporate Spokesman Paul Smith said customer enquiries for fixed rate mortgages had fallen to around 15 per cent of total home loan enquiries since the RBA cut the cash rate by 75 basis points in May and June.
Mr Smith said enquiries for fixed rates had been as high as 30 per cent of total enquiries but consumers clearly believe rates are likely to fall further despite the RBA keeping the cash rate on hold this month.
“The demand for fixed rate products has fallen as variables rates have basically intersected with fixed rates,” he said.
“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.”
“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.”
Mr Smith said the ongoing economic uncertainty in Europe would ensure it would be some time before there was any prospect of interest rates going up.
“Economic conditions outside Australia are expected to influence the RBA to further reduce the cash rate, however with two recent significant rate reductions as well as a bevy of daily mixed messages from Europe, it appears the RBA will be observing the impact of these before making another rate reduction,” he said.
Mr Smith said while the official rate was at 3.5 per cent, the lowest fixed and variable rate products was around 5.79 per cent.
“It’s clearly evidenced by where the cash rate sits relative to where home loan interest rate products sit, that the cost of borrowing funds from overseas is dampening the efforts of the RBA to lower home loan rates,” Mr Smith said.
Mr Smith said a large number of Australians committed to fixed rates just before the global financial crisis in 2008 and then watched as the RBA reduced the cash rate from 7.0 per cent to a near record low of 3.0 per cent in seven months.
“Borrowers considering a fixed rate need to do so for the right reasons such as certainty of repayment and peace of mind rather than as a speculative play on where rates are going to move,” he said.
“A mortgage broker is best placed to offer guidance on the pros and cons of fixed versus variable, or splitting your loan between a fixed and variable product.”