Australian Property News
Variable more popular than fixed
Posted on Wednesday, December 17 2008 at 4:16 PM
Basic variable loans have become the loan of choice for Australians, according to Mortgage Choice.
That type of loan made up 44 per cent of the company’s loan approvals in November, which was an increase of 7 percentage points.
Variable loans in general are clearly the most popular choice, making up 87 per cent of Mortgage Choice’s loan approvals in the month.
Meanwhile, demand for fixed rate loans remains at less than 3 per cent, which is the lowest level since February 2003, when the company started its loan product reporting.
Mortgage Choice senior corporate affairs manager Kristy Sheppard says the figures show borrowers are favouring the more basic home loans, with fewer features in return for a lower interest rate.
“The continued popularity of variable loans indicates borrowers were encouraged by the Reserve Bank of Australia’s decision to reduce the cash rate by 100 basis points in November,” she says.
“In recent months the Australian love affair with fixed rate loans has dropped significantly.
“In November 2007 fixed rate loans were the loans of choice for 40 per cent of borrowers but by November 2008 this figure had dived to below 3 per cent.
“Despite interest rate reductions on fixed products, borrowers are less likely to choose them at present because of further speculation on rate cuts.”
Also in November standard variable home loan demand fell by 4 percentage points to 43 per cent of all loan approvals in Australia, bringing figures more in line with the 12-month average of 40 per cent.
Sheppard says despite the fall in demand for standard variable loans, the product is still popular when compared to the 31 per cent recorded in November 2007.
“We find the demand for standard variable loans is driven by discounts offered by many lenders when the loan is $150,000 or more, as well as the flexible nature of the loan interest rate,” she says.
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