Demand for fixed rate home loans has been surging despite the prospect of official interest rate relief from the Reserve Bank of Australia (RBA), says leading mortgage broker Loan Market.
Loan Market Corporate Spokesman Paul Smith said the company had experienced a significant rise in demand for fixed rate loans over the past month as a result of the RBA staying on the sidelines and lenders lifting their variable rates independently.
“Loan Market has seen demand for fixed rates increase by 15 per cent in the past month in a clear sign that consumers are mindful the banks may keep raising their variable rates irrespective of RBA rate decisions,” he said.
Mr Smith said lenders have also upped the ante on fixed rate products recently with some banks offering three year fixed rate deals as low as 5.98 per cent.
“The spread between variable and fixed rates is getting wider and is as much as 70 basis points for your average three year fixed rate mortgage,” he said.
Mr Smith said borrowers need to ensure they were locking into a fixed rate for the right reasons, some of which included certainty of repayment and peace of mind rather than as a speculative play on where rates are going to move.
He said a large number of Australians committed to fixed rates just before the last global financial crisis in 2008.
“There was much speculation about fixing rates at that time, and unfortunately many consumers had to sit on the sidelines and watch rates dramatically drop in the span of several months,” he said.
“We’re obviously in a different economic situation at the moment but borrowers should always be mindful of their long-term goals when considering products in an unpredictable market.
“It’s certainly attractive for consumers to consider where fixed rates are sitting relative to variable rates.”
Mr Smith said while the RBA board is widely forecast to lower its cash rate of 4.25 per cent next week, the demand for fixed rates should continue.
“Even if the RBA cuts rates, lenders are still likely to move independently of the central bank due to increased funding costs,” he said.
“It may pay for consumers to closely assess what their lenders are offering, particularly with their fixed rate products.
“Many consumers who have locked in a fixed rate over the past 10 months have been paying less than those on a variable rate.”