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Fixed rates unattractive
Released 12 August 2010

The popularity of fixed rate home loans has dropped to 2% of all new approvals nationally in July, according to Mortgage Choice.

The mortgage broker said talk of lenders intending to increase mortgage interest rates independently of the Reserve Banks cash rate cycle is doing nothing to increase the attractiveness of fixed rates. Nor is the continued reduction in the cost difference between taking out a home loan at a basic variable rate rather than a three-year fixed rate, the most popular of fixed terms.

The majority of new borrowers are taking out standard variable loans, mainly because of the wide range of professional packages on offer with these products. Pro packs tend to offer interest rate discounts along with Gold credit cards and other special features.
 
Mortgage Choice spokesperson Kristy Sheppard said that on a national level, the demand for fixed rate loans has stood at less than 5% of all the companys new approvals for 11 months and less than 10% of approvals for 25 months.

"With fixed rate home loans at a mere 2% of all our July home loan approvals, it has now been more than two years since this loan type has poked its head above 10% of new approvals for any month," she said.

This is despite less than half a percentage point difference between our average basic variable rate and the three-year fixed rate, which converts to less than $100 per month on a $300,000 loan. New borrowers are simply steering clear and taking their chances with variable rates.
 
Even the state where were seeing the highest demand, New South Wales, is only experiencing a take-up rate for fixed loans of 3% of all approvals. Western Australia, the state with the lowest level of demand, saw less than half a percent of its approved July home loans being fixed, which was a decrease of almost two percentage points from June.

Nationally, standard variable loan demand rose to 52% of June approvals, four percentage points above the 12-month average and the highest level reached since October 2008.