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ISCOVER
Staff Reporter
Cuts to fixed rate home loans are encouraging many borrowers to jump on the fixed rate bandwagon.
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Data from the Australian Bureau of Statistics found 3,301 home loans were fixed in June – up from 3,148 in May.
The jump was the highest month-on-month increase since December 2010, when borrowers were spooked by the large variable rate increases of November 2010.
Even more significantly, the proportion of fixed home loans was almost double that of June 2010.
Across the country, Western Australian households had the biggest increase in the take-up of fixed home loans with 140 per cent more in June 2011 compared to June 2010, followed by Australian Capital Territory.
RateCity’s chief executive officer Damian Smith said lenders have started competing aggressively in the fixed home loan market.
“Most lenders have been dropping their fixed home loan rates steadily this year but we haven’t seen this level of fixed rate movement since the global financial crisis. We saw 17 lenders drop some of their residential fixed home loan rates this week alone. The average three-year fixed rate has now hit a new low of 7.20 per cent from 7.42 per cent in December 2010,” he said.
Mr Smith said that while fixed interest rate movements can be an indicator of the direction of the interest rate cycle, there are other explanations for the movement in rates.
“Lenders are using attractive fixed rates to kick start a very slow home lending market,” he said.
“With the abolition of excessive early exit fees on variable rate loans, fixed loans have become more attractive for lenders. They can still charge break fees for early exit on these kinds of loans, and therefore they have confidence that fixed rate customers will be less likely to switch away to another lender.”
