Aussies rush to fix mortgage rates
Australian home loan borrowers are exhibiting a risk tolerance at odds with the natural gambling streak most Australians possess.
RateCity has noted a trend towards fixed mortgages by a nation known for its leanings towards variable rate home loans.
The fourth rate rise in the last 18 months has been the catalyst for consumer preference and consequently, more people going into fixed rate home loans. Over 25% of all residential home loans are now fixed, compared to 17% prior to January last year.
South Australia is leading the charge towards fixed mortgages with 35% of loans in that state being fixed. Factors which may influence this trend are higher unemployment levels than other states and a higher age demographic which is less tolerant to risk.
Many people are now using fixed mortgages to hedge against the uncertainty of further rate rises they fear they will not be able to service on a fixed income.
There has also been a sharp rise in the use of fixed rate loans by property investors.
Proportion of Residential Fixed Rate Home Loans in Australia
Australia is only one of a few countries which favours variable over fixed. In the United States the volatility of the home loan market has seen the great majority of Americans opting for a fixed rate and security over repayments.
Closer to home, New Zealanders show a distinct preference for fixed rate over floating mortgages. Over 85% of residential home loans in New Zealand are fixed.
While both countries have experienced an economic roller coaster in the last decade, the US in particular, has lived through borrowing rates as high as 6.5% and as low as 1%.
Another factor driving the proportion of fixed versus variable is the value assigned to each.
Historically, the fixed rate in New Zealand is more competitive that the floating rate. In Australia, it is the opposite with the two rates much closer, as shown in the table below. This may well change over time, as lenders vie for more marketshare of fixed loan business.
| Fixed vs Variable Rate | |||
|---|---|---|---|
| Average Variable | Average 3-year fixed | Margin | |
| Australia | 7.59% | 7.70% | 0.11% |
| New Zealand | 10.22% | 9.14% | -1.08% |
| Source: www.canstarcannex.com.au 08/08/2007 | |||
Ultimately, the decision by home owners to stick with variable interest rate or fix part of their loan rests with the mindset of a nation.
Australian borrowers are beginning to show the level of risk they will cope with as the trend towards fixed increases.
Related Links