Variable rate demand heating up
Small variable rate cuts seem to have enticed borrowers away from fixed rates.
New figures from Mortgage Choice show a rise in the proportion of borrowers choosing variable rate loans. The products accounted for 75.06% of all mortgages written through the brokerage in the month of June. The result was a rise on the 73.57% the month prior.
Mortgage Choice chief executive John Flavell put the change down to small cuts to principal and interest variable rate products.
“While most lenders have only trimmed the interest charged on their variable principal and interest mortgages by five basis points or so, these rate adjustments have clearly been strong enough to encourage borrowers to opt for a variable rate mortgage rather than a fixed rate product,” Flavell said.
Flavell said fixed rate loans fell from 26.43% to 24.94% of all loans written through Mortgage Choice.
“While down on the previous month, it is important to note that fixed rate demand is still relatively high by long-term standards,” he said.
While borrowers have shifted back toward variable rates, Flavell said it was difficult to forecast how demand would change in the months ahead.
“There is a lot of volatility in the market at the moment. In recent weeks, many of Australia’s lenders have increased their interest only pricing by a considerable amount. At the same time, these lenders have shaved the interest rates charged on their principal and interest products,” he said.
“These rate adjustments clearly show that many of Australia’s lenders are hungry for a particular type of business. Over the coming months, I would expect to see an increasing level of complexity and confusion in the interest rate market as lenders continue to adjust their pricing and policy in line with their business appetite.”