Rush to lock in fixed home loans

BORROWERS are increasingly turning to fixed-rate home loans as lenders slash rates in a bid to attract new customers in a soft housing market.

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 that it would keep its standard variable mortgage rate unchanged 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, Australia's biggest mortgage lender, said it had seen "a very large proportion" of customers choosing fixed rates, with about 25 per cent of clients taking up a fixed-rate loan.

"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 seen an increase in demand for both packages, especially the two-year deal.

"For people looking for a fixed-rate home loan, 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 seen 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 that 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.

"It's unusual to see more borrowers locking in a fixed rate while variable rates are falling because borrowers generally feel they will miss out on the savings of lower variable rates.

"But many fixed rates are lower than variable, giving borrowers an incentive to fix," Ms Hutchison said, adding that the banning of early exit fees on variable rate mortgages in mid-2011 could have also been a factor.

Analysts have said that "out-of-cycle" mortgage rate cuts independent of the Reserve Bank's actions have become more likely as wholesale funding costs fall and banks' profits grow, increasing the pressure on them to ease rates.