More and more borrowers are locking in fixed rate mortgages over longer terms, after banks slashed rates to record lows last month.
Three weeks after the big banks dropped a range of their fixed rates to below 5 per cent, Westpac, National Australia Bank and ANZ say more customers are looking to fix some or all of their mortgage.
Westpac’s head of home ownership, Melanie Evans, said the proportion of new loans with a fixed component was almost 30 per cent compared with 15 to 20 per cent a few weeks ago.
Of these customers, the proportion opting for a five-year loan was “approaching 20 per cent,” a significant increase compared with a few weeks earlier, she said.
Three-year loans remained the most popular, but customers were generally favouring longer terms, as they had previously until a couple of years ago.
“We’re seeing Australians revert to the way they had been fixing their loans up until two years ago,” Ms Evans said.
The change in behaviour was a “rational” response to the fall in longer-term borrowing costs, she said and customers were not breaking their existing fixed-loan contracts.
‘SUBSTANTIAL’ LIFT IN DEMAND
NAB’s general manager of consumer lending, Melissa Reynolds, also said there had been a “substantial” lift in demand for fixed-rate loans in recent weeks. One in four home loan mortgage applications was for a fixed rate.
“NAB has seen a substantial increase in demand from home buyers for fixed rate home loans since we cut rates to 20-year lows of less than 5 per cent in July,” Ms Reynolds said. “In particular, interest in longer-term loans are at levels we haven’t seen before as customers take advantage of rates under 5 per cent and the opportunity to have certainty on their mortgage repayments.”
An ANZ spokeswoman said there had been a “small” uptick” in applications for fixed-rate loans. The Commonwealth Bank did not comment, as it is in a blackout period before its full-year profit result on Wednesday.
Fixed-rate loans reflect market bets on future movements in interest rates. While aggressive rivalry between banks is giving customers a chance to lock in record-low rates, some expect interest rates to fall even further.
Investors are betting there is still a 50-50 chance the Reserve Bank will reduce the case rate early next year in an attempt to strengthen the economy.