While some fear that not enough activity is happening in the local property market data tells us that the needs of homeowners are changing and that their product selection is being impacted on. While homeowners may still not be getting the maximum rate cut passed on to them by the banks, they are changing their approach and opting for variable interest rates to reap as much of the further potential rate cut reductions as possible.
For the first time in the last five months, fixed rate home loan demand has dropped as home buyers anticipate more rate cuts will make variable loans a more attractive prospect. According to new data fixed rate loan popularity has decreased by 4.26 percentage points on average. In Queensland, which has areas under mortgage stress on the coast, fixed rate loans have increased by 4.12 percentage points. Last month fixed rate loans dropped to make up 20.14% of all new home loan approvals, a rate lower than what was recorded for November (22.37%) and under the 12 month average of 21%.
Last week Deutsche Bank announced that home lending growth had gone up by 4.8% in November following its 3.3% growth rate in June, with NAB leading the performance stakes.
Most Aussies were taking out variable loans and borrowers had locked in costs as we moved towards December and the cash rate dropped to its global recessionary low from 2009. The fixed rate provides some level of assurance of a consistent repayment rate on a mortgage and had been a stability that local home buyers welcomed till last month. But trend research conducted at Bankwest Home Loans shows variable rates have the potential to go down in value and this is what has been attracting buyer attention, and what has seen variable home loans overtake fixed rate mortgages. According to other data four out of five people say they would prefer a variable rate on their mortgage, a sentiment that is believed to be supported by the belief that more rate cuts will be passed.
A JP Morgan economist has said the central bank is likely to take the high local dollar and the stagnant non-mining economy into account and drop the cash rate to an all-time low of 2.75%. He says today’s 2.75% equates to yesterday’s 4.25% as home owners have yet to be given the full rate cut. As home owners come under more pressure and the instability of global markets continues home owners are showing that they may just go against market trends.
In mid-December ANZ cut their variable home loan rates by 20 basis points, which was less than the cut recommended by the central bank. ANZ dropped its standard variable interest rate to 6.4% in December, a move that was also extended to its business customers who had variable loans. The decision was taken following the RBA’s move to cut the cash rate to 3%, a 25 basis point drop. ANZ follows Commonwealth Bank and Westpac who also dropped their rates by 20 basis points.
A spokesperson said the bank had based its decisions on how lower rates improved domestic funding, the on-going bank competition for deposits, the global financial climate and the bank’s competitive position. He said the bank felt its decision would provide their customers with a competitive interest rate in light of the financial uncertainty in Europe and the United States.