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The window of opportunity for borrowers to lock in rock bottom rates may have closed, but fixed rate loans are becoming more popular.
There is growing concern among brokers that borrowers may have missed the fixed rate boat, following an increase in fixed rate pricing by Australia’s majors over the last two months.
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Blaming rising funding costs, the Big Four have all moved to lift their fixed rates over the last few months. Between April and June, NAB raised its three-year fixed rate a full percentage point to 6.49 per cent, while St George hiked its rate even higher – from 5.34 per cent to 6.49 per cent.
CBA also joined in, lifting its fixed rates in April by up to 0.45 percentage points. Its one year fixed rate remains stable at 5.39 per cent, while rates for loans ranging from two to 15 years rose anywhere between 0.2 and 0.45 percentage points.
Upward fixed rate movements have prompted industry professionals such as Loan Market Group’s executive director John Kolenda to argue that the opportunity to lock in long-term fixed rates in the low 5 per cent range has passed.
But while borrowers may have missed the bottom of the rate cycle, Citibank senior economist Joshua Williamson says they still have the chance to lock in a good fixed rate.
“Fixed rates should remain fairly stable in the short- to medium-term. That is, unless the global financial crisis worsens and banks face higher funding costs,” Mr Williamson says.
But he expects fixed rates to rise in the longer-term. “Consumer sentiment and market activity throughout the rest of 2009 will have an effect... I will not be surprised to see [fixed rates] climb in the early part of 2010.”
Compared to 12 months ago however, borrowers are still in front. This time last year a typical fixed rate on a one year loan was a little over 9 per cent. That figure has now fallen to around 5.3 per cent. And many borrowers are taking advantage of the lower rate environment.
Mortgage Choice’s senior corporate affairs manager Kristy Sheppard says market sentiment towards fixed rate loans is on the rise. ABS figures support this with fixed rate loan commitments as a percentage of total owner occupied finance rising to 6.5 per cent in May.
Mortgage Choice customers followed this trend. In April, 4.0 per cent of Mortgage Choice customers chose fixed rate home loans over variable rates. In May, the percentage rose even higher, to 6.6 per cent.
“We saw fixed rates hit rock bottom in October last year. But since then, we have seen a steady upswing in the number of people taking up fixed rate home loans,” Ms Sheppard says.
