Basic variable rules lending roost

Basic variable home loans were the product of choice in April as borrowers opted for low interest rates over bells and whistles, according to Mortgage Choice lending figures.

Of all loans taken out in the month, 48 per cent were basic variable, the second highest percentage since Mortgage Choice started recording its approval data in 2003. Mortgage Choice senior corporate affairs manager Kristy Sheppard says basic variable loans have been the most popular loan type for four months now, after overtaking standard variable in January 2009.

“Despite interest rates being at their lowest in decades, the volatile global and domestic economic climate is having a strong influence over loan product preferences,” Sheppard says.

“Consumer conservatism with rate and fees continues to win out against loan flexibility and extra features.”

Just four per cent of borrowers opted for fixed-rate loans, a long way from a peak of 37 per cent in November 2007.

API deputy editor Matthew Liddy says the data suggests many Australians have locked in their interest rates at the wrong point in the cycle.

“Savvy investors and homebuyers should be looking to fix their rates as close to the bottom of the interest rates cycle as possible,” Liddy says.

“Paradoxically, this data suggests locking in your interest rate is more popular when interest rates are high.

“Rates are currently at their lowest point in decades, with the official cash rate at three per cent, and yet the proportion of borrowers taking out fixed loans is also close to a record low.

“Fixed rate loans were at the height of their popularity in November 2007, when official interest rates were 6.75 per cent – close to the top of the rates cycle.”