Latest NewsFixed-rate Mortgage Discounts Fail to Sway Many BorrowersThursday, 01 June 2017

Demand for fixed-rate mortgages increased only marginally in August despite lenders making big cuts to these products.

Fixed-rate mortgages accounted for 14.1% of all successful loan applications submitted by Mortgage Choice brokers on behalf of borrowers over the month - up from 13.3% in July.

Earlier this month, Australia’s biggest home lender Commonwealth Bank cut its fixed-rate mortgages by up to 60 basis points following earlier cuts by Westpac, AMP, ANZ and ING Direct.

According to Mortgage Choice spokesperson Kristy Sheppard, the trend "speaks volumes about new borrowers’ and refinancers’ mindset around interest rate rises and the value they place - or rather, don’t place - on locking in their rate at the moment".

"I expected the take-up of fixed rate home loans to grow noticeably in August due to the well- publicised reductions many lenders have been applying to their fixed term pricing.

"Despite our lender panel’s average three-year fixed rate falling half a percent in the past four weeks alone, fewer than one in seven new mortgage holders fixed part or all of their rate last month.

"Borrowers’ reticence to fix may also be influenced by memories of the break costs many people faced when considering switching out of their fixed terms during Spring 2008 to Autumn 2009 when the cash rate fell from 7.25% to 3.00% and home loan interest rates followed."

Ongoing discount home loans - where the interest rate is discounted over the entire loan term usually in return for an annual fee - remain by far the most popular mortgage product, accounted for 41.5% of all approved loans, up from 38.6% in July.

There remains little demand for line of credit mortgages - most popular with investors, accounting for less than one in 20 mortgages approved and close to the 12-month average of 4.7%.

Line-of-credit loans allow borrowers to use their mortgage like a credit card, allowing them withdraw funds up to a set limit at any time.

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