The demand for fixed rate home loans has increased over the last 12-months. Financial experts suggest this may be due to increased economic uncertainty and the fact that major Australian banks made independent rate rises near the end of 2015. There has also been a talk of home loan interest rates rising near the end of 2016.
According to national home loan data, fixed rate home loans accounted for 23.62% of all loans written in January 2016. This was 19.44% higher than in December 2015. This rise means that almost one in four home loans written was for a fixed rate home loan.
Financial experts say that fixed rate demand has not been this high since November 2014, when uncertainty surrounded interest rates. Experts expect fixed rate demand to continue to rise slightly over 2016.
According to recent approval figures, fixed rate home loans accounted for 27.4% of all home loans written in October 2015. This was slightly higher than the 26.9% recorded in September 2015.
Of the data collected, Western Australia recorded the highest increase in fixed rate home loans with a jump of 8.8% over October to 28%. Fixed rate demand rose in all Australian states except S.A and QLD. In these states, demand fell by 4.4% and 4.5% respectively to 20% and 32%.
However, while QLD recorded a significant drop in demand for fixed rates, the product accounts for more than 30% of new home loan approvals. This indicates that borrowers are concerned about current economic conditions and are seeking ways to better manage their financial commitments.
Of course, the same cannot be said of South Australia, where fixed rate demand has fallen to its lowest level in 8-months. In fact, according to data collected in January 2016, Victoria and South Australia recorded the lowest fixed rate home loan demand with rates of 13.09% and 20.03% respectively.
Queensland recorded the highest demand for fixed rates with this type of loan accounting for 31.12% of all home loans written in January 2016. New South Wales and Western Australia followed with a 24.07% and 23.15% rate respectively.
According to data released from the Australian Bureau of Statistics (ABS), mortgage demand increased significantly over December 2015. During this month 58,552 home loans were approved. This was a 2.6% increase on November data of 57,081. According to research the last time more than 58,500 home loans were approved was in January 2008.
Over December 2015, new dwelling commitments rose by 1.8% while the number of loans for new and established dwellings rose by 12.4% and 2.1% respectively. In addition, the values of all home loans rose by 2.1% to 33.5 billion. Investment loans rose by 0.6% and owner-occupier loans rose by 0.9%. Property and financial experts say they expect the market to remain robust during 2016.
With increased fixed rate demand has come to a competitive streak between the big four – ANZ, NAB, CBA, and Westpac – for a higher market share. This will allow these banks to build their lucrative home loan market. The banks have elected to do this by offering their broker network more competitive pricing.
CBA recently told its brokers that it will beat any advertised rate on its one to five years fixed rate home loan from rivals Westpac, ANZ and St. George. NAB is said to be offering brokers a 4.32% rate, CBA 4.74% and 5.4% on a $500,000 loan with an 80% loan-to-value ratio.
However, experts suggest that if you’re looking for a competitive rate, then there are more than 10 smaller lenders that have fixed rates that are below 4%. More than 14 lenders have also increased loan-to-value ratios or slashed investor rates. In some cases, this is by as much as 30 basis points.
But, it’s important to remember that in order to be eligible for these rates that home buyers need to be able to meet tougher lending criteria and scrutiny in relation to their capacity to repay their home loan. This means that they will need to produce more in-depth financial data, their estimated debts, and projected rental income from investment properties.
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