When to fix your interest rate

As soon as Australians realised that rate cuts were on their way in 2008, fixed rate demand fell sharply to all-time lows. In contrast, Mortgage Choice senior corporate affairs manager Kristy Sheppard says 2009 has already seen a slight reversal.

According to Sheppard, “The interest rate rises in early 2008 saw fixed rate loan demand hit highs not seen for years, and then as interest rates began to decrease that trend quickly turned 180 degrees, resulting in fixed rate demand hitting historical lows. Only now, at the beginning of 2009 amid talks of interest rates not having too much further to fall, have we begun to see a slight reversal in the demand for fixed rate loans.”

Sheppard says, “At its peak in February 2008 fixed rate loan demand around Australia hit 36 per cent after jumping from 26 per cent in January. At its trough, in November, only two per cent of all loan approvals were for fixed loans. The latest data, for January 2009, shows fixed rate loan demand appears to have turned a corner. It now stands at four per cent after rising from three per cent in December.

“I’ll be surprised if fixed loan demand fell significantly over 2009, given the majority of economists are predicting only a relatively small additional cash rate decrease – to two per cent by the end of 2009 – and a couple of major lenders have already warned Australians not to expect further cuts passed on in full. Hence, interest rates on mortgages will probably move only slightly further south.”

Sheppard adds, “Customers choose fixed rate loans for three main reasons: they want peace of mind resulting from a fixed repayment amount and/or there’s speculation about rates increasing and/or a lender is offering an attractive fixed rate deal. Hence, first homebuyers and investors in particular are fans of fixed rate loans, both fully fixed and split fixed/variable loans.”