The recent trend of fixed rate loans comprising only a minor proportion of all new Australian home loans appears to have bottomed out. Demand for loans with fixed interest rates rose for the third month in a row in May 2009, to 7% of all Mortgage Choice loan approvals.

Basic variable loan demand continues to rise, reaching 49% after a brief dip in March and April. The only other time it has hit this level, since Mortgage Choice began recording such data in January 2003, was in February 2009.

Standard variable loans, many of which are professional packages (where eligible customers with a loan worth over $150,000 can receive discounts on the interest rate along with other professional package features), fell for the second month in a row, to 39% of all approvals.

“Fixed rate loans reaching 7% of all our home loan approvals for May 2009 is the highest level we’ve seen since July 2008, but a long way from the peak of 38% reached in November 2007,” said Mortgage Choice senior corporate affairs manager Kristy Sheppard.

“It is interesting to see a number of new borrowers locking in their rate, despite the fact that fixed loans are priced higher than many variable loans at the moment. However, we are experiencing interest rates that are historically very low, so it will make sense for some to simply ‘set and forget’.”

“Basic variable loans continued to be very popular with Australian borrowers in May, increasing by one percentage point to almost half of all new loan approvals, at 49%. This was well above the 12-month average of 40% and quite a way in front of standard variable loans, where demand dipped four percentage points to 39%.

“Basic variable loans have been the most popular loan type for five months now, after overtaking standard variable for the first time on our records in January 2009. This demonstrates that most Australians are comfortable with the interest rate situation, for now at least, and probably expect them to stay low for quite some time.”

Uptake of line of credit loans (generally popular with property investors) in May increased slightly though remained at 5% of all approvals, comparing to a 12-month average of 8%.