We Australians can be an impulsive lot.
Particularly when it comes to home loans and whether we choose to fix interest rates or take our chances with the going variable rate of the day.
More often than not, a large percentage of homeowners jump on the fixed rate wagon when it’s too late; just after the Reserve Bank starts pushing rates up to keep inflation in check.
Recently though, it would seem many mortgage holders are fearful of missing out on the apparent generosity of the banks, who are offering some enticing fixed rate deals.
According to a recent article in the Sydney Morning Herald, a growing number of homeowners are being lured into fixed rate mortgages despite some analysts predicting we are still in for at least another one, if not two rate cuts over the next six months.
The Australian Bureau of Statistics reports that the number of fixed loans grew from 10.6 per cent to 11.1 per cent prior to last year’s November rate cut.
While mortgage broker AFG reveals that 19.2 per cent of loans they arranged on behalf of clients in December were issued at fixed rates, compared to just 8.2 per cent of their business six months earlier.
So is this a case of strike while the iron’s hot?
According to CommSec economist Savanth Sebastian, “It’s more about ensuring you can purchase a place within your budget and within your limits,” he says.
“While the risks are to the downside [for rates to fall], I think the fixed rate market has already priced in a couple more rate cuts,” he says.
“In addition “even though the Reserve Bank may well cut rates again, the banks need to pass these on.
So the fixed market is looking very attractive, not only do you need a couple more rate cuts [for variable rates to match fixed] but you need it all to be passed on as well to justify where the fixed market is.”
Should you fix?
Indeed, many experts are suggesting that now is a good time to consider fixing your home loan if you prefer the certainty of knowing what your mortgage commitment will be from month to month and the good night’s sleep that goes with such knowledge.
The fact that Aussie home owners are so eager to fix their rates is not surprising really, given the continuing economic uncertainty and what we saw with interest rates rising in quick succession immediately after the 2008 Global Financial Crisis.
“We saw straight after the GFC how rates rose, it certainly would have caught some home buyers that were on the edge in terms of repayments, so at least this way they can sleep easy,” says Sebastian.
Home buyers proceeding with caution.
As for the state of the housing market at present, ABS data reveals that the number of new owner-occupier housing loans rose by 1.4 per cent in November while the value of loans rose by 2.2 per cent.
Interestingly though, would-be buyers are not necessarily racing out to snap up the first property that comes along, with many new home loans not being drawn down by cautious types who simply want to get their finances sorted “just in case”.
No doubt some are concerned about the state of the world economic situation and closer to home, reports of unemployment figures starting to once again rise, but surely people who have the means to buy (and hang onto) a property right now can recognise a buyer’s market when they see one?
People are scared and when people are scared they tend to become paralysed into inaction.
It will be interesting to see what the next round of stats show
With the banks recently raising interest rates out of step with the RBA and increasing uncertainty about further rate cuts, I imagine more borrowers will be fixing a portion of their loans to give themselves some certainty about future cash flows.
I know I’m considering it.
At our upcoming National Property & Economic Updates, award winning finance strategist Rolf Schaefer will be giving his views on what’s ahead for the economy and interest rates – click on here now to get full details and reserve your place
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.