Rush to fix at lowest rates in two decades
A string of lenders - including three of the four big banks - have cut their rates for two-year fixed home loans to below 5 per cent in recent months. Mortgage rates are at their lowest levels in two decades.
Meanwhile, ANZ said in its monthly interest rate review on Friday it would keep its standard variable mortgage rate at 6.4 per cent, despite a fall in funding costs, in the first reaction by a major bank to the Reserve Bank's decision on Tuesday to keep the cash rate on hold.
"The interest in fixed-rate loans has tripled since December last year," Kirsty Lamont of comparison site Mozo said. "The average fixed rate is about 4.99 per cent, about 60 to 70 basis points lower than the average variable rates that most people are getting right now, which is about 5.6 per cent. To get to that point, you would be looking at another three to four rate decreases, which is unlikely to happen this year."
A spokeswoman for Commonwealth Bank said it had "a very large proportion" of about 25 per cent of customers choosing fixed rates. "Of that, around 80 per cent are selecting our two-year fixed-rate loan at 4.99 per cent," she said.
A NAB spokesman said the bank - which lowered its one-year fixed-term rate to 5.09 per cent and its two-year fixed rate to 4.99 per cent last month - had had an increase in demand for both packages, especially the two-year deal. "Our rates are now the lowest they've been since 2009," the spokesman said.
ANZ, which offers a two-year fixed-rate of 5.14 per cent, said the bank had not had a lift in demand for its fixed-rate products.
RateCity spokeswoman Michelle Hutchison said 22 per cent of the home loan applications made on the financial comparison site in January were for fixed home loans - a 47 per cent increase from the previous corresponding month.
Last month, 17 per cent of all RateCity applications were for fixed home loans, still higher than 2012's average of 16 per cent, she said.
A RateCity analysis of Bureau of Statistics data on fixed home loans found the proportion of such mortgages was 13 per cent last year, up from 8 per cent in 2011.
Ms Hutchison said the uptake for fixed home loans while variable rates continued to fall was unusual.
"But many fixed rates are lower than variable, giving borrowers an incentive to fix," she said, adding the banning of early exit fees on variable-rate mortgages in mid-2011 could have also been a factor.
Frequently Asked Questions about this Article…
Borrowers are increasingly choosing fixed-rate home loans because many lenders have cut fixed mortgage rates to their lowest levels in two decades, making some fixed deals cheaper than variable rates. Comparison sites quoted in the article also report a large rise in interest for fixed-rate loans as borrowers seek price certainty.
Two-year fixed mortgage rates have fallen to around 4.99% at several lenders, with some banks offering two-year deals below 5% in recent months. The article notes this level is the lowest for mortgage rates in about 20 years.
According to the article, the average fixed rate is about 4.99% while the average variable rate most people are getting is around 5.6%, meaning fixed rates are currently roughly 60–70 basis points lower than many variable mortgages.
The article mentions Commonwealth Bank and NAB offering two‑year fixed rates at about 4.99%, and NAB also cut its one‑year fixed term to 5.09%. ANZ is mentioned as offering a two‑year fixed rate of 5.14% but said it had not seen a lift in demand for fixed products.
Yes. The article reports a sharp increase in interest: Mozo says interest in fixed-rate loans has tripled since December, RateCity saw a 47% increase in fixed-loan applications year-on-year for January, and ABS-based analysis showed the share of fixed home loans rose from 8% in 2011 to 13% last year.
No. While several lenders including NAB and Commonwealth Bank reported increased demand for their fixed packages, ANZ said it had not experienced a lift in demand for its fixed-rate products despite current rate movements.
The article suggests the banning of early exit fees on variable-rate mortgages in mid-2011 may have made it easier for borrowers to switch products, which could be one factor encouraging uptake of fixed-rate loans even as variable rates fall.
Based on the article, borrowers should compare current fixed and variable rates (fixed rates in the article are around 4.99% vs variable at about 5.6%), think about how long they want rate certainty (many are choosing two‑year fixes), and factor in the ease of switching since early exit fees on many variable loans were banned in 2011. Also note that some commentators expect further rate moves to be limited this year, which may influence decisions.
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