Standard variable overtakes basic variable as most popular product type

The popularity of fixed rate loans in Australia has dropped slightly to just under 7% as lenders continue to raise interest rates for this loan type. According to August 2009 data from Mortgage Choice, Australia’s largest independently-owned mortgager broker, demand for fixed products has stood at less than 10% of all its loan approvals for 14 months now.

Demand for variable loans also remained relatively steady, for the third consecutive month, at 86% - only two percentage points below the 12-month average. However, standard variable loans (where eligible customers with a loan of over $150,000 can receive discounts on the interest rate plus other professional package features) have become more popular than their ‘plainer’ counterpart.

Mortgage Choice senior corporate affairs manager, Kristy Sheppard said, “Fixed rate loan demand remained at 7% of all our loan approvals over Winter, dropping slightly in August. This is not surprising given the large pricing difference between fixed and variable rates plus uncertainty over the details of cash rate increases that are expected to occur soon.”

“The popularity of fixed rates has veered between only 2% and 9% of all our approvals since July last year - a long way from its peak of 39% in November 2007. It indicates Australians are still unsure as to whether it is worth paying a significant amount more for the peace of mind over repayments that fixed loans provide.

“Variable rate loans are still far and away the most popular type of loans, at 86% of approvals. However, standard variable loans at 43.31% overtook basic variable at 43.05% in August to once again become the loan of choice, after trailing the simpler product type since January.

“This indicates that a greater number of borrowers are happy to pay a little extra for the privilege of more flexibility and features within their standard variable home loan, perhaps as job security and economic stability concerns settle down.

“It could also be reflective of a rise in housing finance demand from the more confident categories of borrower - upgraders, refinancers and investors.”

Uptake of line of credit loans (generally popular with property investors) increased slightly to 6% of all approvals, comparing to a 12-month average of 7%.

Source: Press Release