Fixed rate home loan approvals drop to below 3%

The popularity of fixed interest rate home loans across Australia has continued to fall, according to October 2009 data from Mortgage Choice, Australia’s largest independently-owned mortgage broker. Fixed rate loans now account for less than 3% of all new loan approvals, while the demand for variable rate loans rose by two percentage points, to 97% of approvals.

Fixed rate products have accounted for less than 10% of the company’s new loan approvals for the past 16 months, while variable rate loans have become almost exclusively the loan of choice for recent home loan borrowers.

Key loan product preference trends for October were:
• Basic variable loan demand rose to 46% of all new approvals from 45% in September
• Standard variable also regained ground, rising to 32% from 30%
• Special variable (commonly known as professional packages, for which rate discounts, ‘Gold’ credit cards and other special features are common) rose to 15% from 14%
• Line of credit (often popular with investors) dropped marginally to 5% from 6%
• Bridging (for those selling a property while purchasing another) fell to 0.13% from 0.25%

Senior corporate affairs manager, Kristy Sheppard said, “Fixed rate loan demand dropped from 5% of home loan approvals in September to less than 3% in October, which is unsurprising, considering fixed loans can be priced up to two percentage points higher, or more, than variable loans. Fixing holds little appeal to new borrowers at present.”

“Victoria was the only state to record a steady demand for fixing. The popularity of fixed rates hasn’t reached such a low level since April this year, although we may see a turnaround in the not too distant future as borrowers prepare for more rate rises.

“Meanwhile, the majority of new Australian borrowers choose to ride out the rate rises. The popularity of variable loans rose nationally to 97% of all new loan approvals in October, up from 95% in September.

“The most popular loan types overall were basic variable, leading the way at 46% of approvals, standard variable at 32% and special variable at 15%. Similar to the September figures, the October results affirm that recent Australian borrowers are more willing to ‘wear’ interest rate rises than they are to pay extra to fix their rate, at least in the short term.”