Demand for fixed-rate mortgages falls, but lenders keep dropping rates

Emma Duffy By on July 26, 2019
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The demand for fixed rate mortgages is the lowest it’s been in eight years, but that hasn’t stopped a number of lenders from continuing to cut rates.

According to new data from Mortgage Choice, demand for fixed rate mortgages fell over the month, accounting for just 21% of all home loans written.

Mortgage Choice CEO Susan Mitchell said the drop is “hardly surprising” considering the spate of variable interest rate reductions that followed the two consecutive cash rate cuts from the Reserve Bank.

“If we look at the split of variable rate and fixed rate home loans at the end of last week, we can see a clear shift towards variable rate loans,” Ms Mitchell said.

“In fact, this type of loan product accounted for 86.5% of home loan applications submitted by our broker network, and only 13.5% of customers chose to fix.

“What is truly shocking about this data is that demand for fixed rate loans has not been this low in almost eight years.”

Despite the drop in demand, lenders keep on cutting fixed rates to sign up customers who are willing to lock in their borrowing costs at low levels.

“I think it’s important for borrowers who may be considering a fixed rate to know that we have seen a significant reduction in fixed rates offered by the lenders on our panel, which suggests that the outlook is for rates to remain lower for longer,” Ms Mitchell said.

Reserve Bank governor Phillip Lowe has signalled the possibility of further rate cuts below its current level of 1%.

Depending on the term and lending type, recent fixed rate cuts have averaged between 25 and 50 basis points. The lowest fixed rate in the market is currently 2.79% by Greater Bank (4.38% comparison rate*).

Here are just some lenders who’ve cut their fixed rates in the last week.

Reduce Home Loans fixed rate cuts

Reduce Home Loans are offering first home buyers a very competitive fixed rate on their Home Owners Dream product of 2.97%, effective from 22 July:

  • Two-year Home Owners Dream 90% LVR plus LMI has been reduced by 22 basis points from 3.19% to 2.97% (3.15% comp rate*)
  • Three-year Home Owners Dream 90% LVR plus LMI has been reduced by 22 basis points from 3.19% to 2.97% (3.14% comp rate*)

Bank Australia fixed rate cuts

Bank Australia has slashed rates on its Residential Premium Package, effective from 22 July:

  • Two-year Residential Premium Package -70% LVR has been reduced by 60 basis points from 3.54% to 2.94% (3.66% comp rate*)
  • Two-year Residential Premium Package 70-90% LVR has been reduced by 60 basis points from 3.59% to 2.99% (3.75% comp rate*)

People’s Choice Credit Union fixed rate cuts

One of Australia’s biggest credit unions has made a raft of fixed rate cuts across its owner-occupier products, effective from 23 July.

  • Two-year principal and interest fixed rates on the Home Loan Package First Home Buyer has been reduced by 41 basis points from 3.54% to 3.13% (4.28% comp rate*)
  • Two-year principal and interest Home Loan Package Residential Fixed 2 yrs 100k has been reduced by 41 basis points from to 3.18% (4.29% comp rate)
  • Three-year principal and interest Home Loan Package Residential Fixed P&I 3 yrs 100k has been reduced by 36 basis points from to 3.33% (4.26% comp rate)

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

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Emma Duffy
Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.
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