Australian Property News

Investors turn to variable rates

Posted on Tuesday, March 08 2011 at 1:11 PM

More investors are choosing to use variable rates, as a wider range of offers and extended cash rate stability become more popular. Demand for fixed interest rates, on the other hand, has taken a tumble.

The latest data from Mortgage Choice shows just 10.7 per cent of the home loans approved in February were for fixed rates. This compared to 15.3 per cent in January, 15.2 per cent in December and 11.2 per cent in November.

Variable rates, however, continue to be the loan of choice, with 34.6 per cent of home loans approved using the later option.

Mortgage Choice spokesperson Kristy Sheppard says the appetite for fixed interest rates is at its lowest since October 2010.

"Last month's fall in demand coincides with the start of the 'lender war' for home loan volume growth," she says.

"It appears new borrowers were lapping up the newly introduced deals on offer in February, taking advantage of lenders' various incentives as they compete to outstrip each other of vital market share.

"A move away from fixed interest rates may also signal an uptick in positive consumer sentiment towards the economic outlook. The next cash rate rise is now tipped for mid to late 2011.

"Ongoing discount loans, where the interest rate is discounted over the entire loan term usually in return for an annual fee, experienced a 2.1 percentage point drop in popularity. This occurred as borrowers, smitten by the range of special offers, increased their demand for standard and basic variable rate loans, by 3.9 and 1.9 percentage points respectively."