Debbie Shankar - 19 Oct, 2015

Demand for Fixed Rate Home Loans Falls to a 4 Year Low

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Fixed rate home loan demand in Australia has been falling for some time, with this demand now dropping to its lowest in 4 years.

According to the latest national research on home loan approvals only 14.41% of home loans were fixed during September 2015, compared to 17.41% in August 2015. Fixed rate demand, say financial experts, has not been this low since August 2011, when fixed rate loans accounted for 13.78% of all home loans.

Financial experts suggest that home buyers are seeking variable rate home loans as many feel that it will be some time before interest rates rise. Recent Reserve Bank of Australia (RBA) data suggests that they may be correct as the official cash rate could stay at 2% for some time.

National Demand for Fixed Rate Home Loans

On the national front, the lowest demand for fixed rate home loans was in Victoria, where this type of loan accounted for 8.61% of all home loans written. Western Australia come second with 12.35% of all home loans written being fixed. The strongest demand for fixed rate home loans was witnessed in NSW where this type of loan accounted for 16.65% of all home loans written. Financial experts are suggesting that more home buyers are turning to variable rates as many lenders were offering, ongoing discounted rates for the lifetime of the loan, which proved to be far more attractive than a fixed rate home loan.

Variable Rate Demand in Australia

According to research variable rate home loans were the most popular in Victoria where they accounted for 85.79% of all home loans written in September. South Australia and Western Australia also had a high demand for variable rate home loans with more than 82% of home loans written being variable. However, only 70% of home buyers in New South Wales elected to take out a variable rate home loan during the same month.

Why is the Demand for a Fixed Rate Home Loan in New South Wales Higher?

Fixed rate home loans give you peace-of-mind and budgeting assurance so that you don’t have to worry about changes in the official cash rate or your bank deciding to lift your interest rate independently. For many home buyers this gives them added security and reduces home loan stress. For property buyers in New South Wales who are paying higher home prices, fixed rate home loans give them added assurance that they can afford their home loan repayments should the variable interest rate rise. Plus, it gives them an opportunity to lock-in a fixed rate that is below 5% for 5 years.

Demand for Fixed Rate Home Loans Falls to a 4 Year Low

Will Fixed Rate Demand Increase With Independent Bank Rate Rises?

On October 14, 2015, Westpac announced that it was going to raise its variable rate home loan interest rate for owner-occupiers by 20 basis points. This announcement shocked many as the move is independent of any Reserve Bank of Australia (RBA) official cash rate decision. Many economists are now suggesting that the RBA may be forced to ‘pick-up the slack’ by lowering the official cash rate to 1.75% in November, so that Australian households and their spending is not adversely affected by the change.

Opposition leader Bill Shorten said the Westpac’s decision was purely ‘corporate greed’ and that the bank was thinking only of their investors. Mr Shorten also said that the Westpac had not put forth a business case for making the change, and that he sincerely hopes that other Australian banks don’t follow suit. Otherwise the backlash could be significant.

Several Australian housing market experts have said that they believe that the Westpac’s move may indicate that the ‘good times’ in relation to lower interest rates are over, and that home owner could be looking at raising rates in the near future.

However, these experts also warn that home owners shouldn’t be too alarmed by the Westpac’s move and make a rushed decision in relation to fixing their home loan. Before looking to fix a home loan, said a number of housing market experts, be sure to consider your own personal and financial circumstances, and also calculate any costs. This will ensure that you get the right home loan for you and your circumstances and that you’re not entering into an agreement that could have adverse financial consequences at a later date. For instance, locking yourself into a fixed rate when you’re wanting to move in the near future could be costly, as break fees and other expenses could far outweigh any other financial benefits.

Want to know more about home loans? Then contact eChoice and find the right home loan for YOU today.

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