Fixed-rate home loan demand surges to five-year high with one in five fixing: ABS

Demand for fixed-rate home loans surged to its highest level in more than five years in April, the latest ABS housing finance figures reveal.

More than one-in-five borrowers (20.6%) fixed their home loan rate in April up from 18.4% in March and 13.5% in February.

The ABS figures show big surges in fixed-rate demand in NSW (up 18%), Victoria (up 22%) and WA (up 31%) in April.

The previous high (and all-time high for ABS data going back to 1991) was in March 2008 when more than a quarter (25.5%) of borrowers fixed their home loan rate when the cash rate reached 7.25%.

This followed a period of increased take-up of fixed rates as the cash rate rose with fixed rate demand as a proportion of total mortgage lending above 20% between October 2007 and March 2008.

For many who fixed over this period, it proved a disastrous move as the RBA then proceeded to cut the cash rate by 425 basis points between September 2008 and May 2009 – leaving those on fixed-rates with significantly higher mortgage payments.

The only option then was too pay hefty mortgage exit fees (still in place for fixed-rate home loans) or continue to pay the higher mortgage payments until their fixed-rate term ended and then refinance into a cheaper variable-rate home loan.

This time the situation is quite different with the cash rate down to a 53-year-low of 2.75% and lenders offering enticing one, two and three-year fixed rates well below 5%.

A more conservative mindset amid concerns about the economy and jobs may also be a factor in rising take-up of fixed-rates.

The most recent lender to cut its fixed-rates was the Commonwealth Bank, the nation’s biggest mortgage lender, which cut interest rates on new three-year fixed rate home loans- the most popular fixed-rate term - to 4.99% per annum under its package home loan offering.

Others to have cut their fixed-rates recently include Citibank, RAMS, and Aussie.