Latest NewsFixed Rate Loans Lose Their Appeal : BrokerFriday, 05 May 2017

Home buyers appear to be throwing caution to the wind against the backdrop of a steady interest rate outlook at the Reserve Bank and heated competition in the mortgage market.

Home loan broker Mortgage Choice says that with a wider range of variable rate mortgages now available, new buyers are turning their back on the security of a fixed interest rate loan.

Mortgage Choice, which currently writes one in 25 new loans across Australia, says just 10.7 per cent of home loans approved in February for its customers had a fixed interest rate.

This was the smallest proportion since October last year, and down from 15.3 per cent in January and 15.2 per cent in December.

It was also the first fall in such loans since July 2010.

"It appears new borrowers were lapping up the newly introduced deals on offer in February, taking advantage of lenders' various incentives as they compete to outstrip each other of vital market share," the broker's spokesperson Kristy Sheppard said releasing the results.

"A move away from fixed interest rates may also signal an uptick in positive consumer sentiment towards the economic outlook."

The Reserve Bank left the cash rate at 4.75 per cent for a third straight monthly board meeting last week, and economists expect this stability to continue to at least its next gathering in April.

Fixed interest rate home loans came back in vogue late last year after the major banks jacked up their standard variable rate mortgages by an average 40 basis points in November, more than the 25 basis point increase in the central bank's cash rate.

Mortgage Choice said that in February, standard variable rate mortgages were the loan of choice, making up 34.6 per cent of its new approvals.

This was followed by basic variable home loans at 25.6 per cent and then `discount loans' at 23.3 per cent - where the interest rate is discounted over the entire loan term, usually in return for annual fee.

Official housing finance data for January is released on Wednesday by the Australian Bureau of Statistics.

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