Demand for fixed mortgages increases as experts predict RBA is done cutting rates

Demand for fixed rate mortgages has increased for the third consecutive month, according to data from mortgage broking chain, Mortgage Choice.

Fixed rate mortgages made up 8% of all mortgages sold by Mortgage Choice in June, the highest level in almost a year. While variable mortgages still dominate the market with 86%, the increase shows many borrowers are willing to bet interest rates are on the way up.

That’s certainly the opinion of respected commentator Bill Evans, chief economist at Westpac Bank.

Evans had been predicting the RBA would cut rates again by a total of 50 basis points in the second half of 2009 as unemployment began to rise sharply.

But the relatively slow increase in the jobless rate (which rose from 5.7% to 5.8% in June, according to figures released late last week) and the stunning increase in consumer confidence (which jumped 9.3% in July) has forced Evans to change his mind.

While he still believes unemployment will rise sharply and the global outlook for growth remains cloudy, Evans says the surprising resilience of consumers, the underlying strength of the housing market and the continued growth of China mean the RBA has done its heavy lifting.

“We now expect that rates have bottomed out and that the next move by the RBA will be to increase rates, although we do not expect that move until early in 2011.”

Of course, there are traditionally some big dangers with fixing mortgage rates. Property expert Michael Yardney, director of Metropole Property Investment Strategists says mortgage industry research shows that borrowers with the variable rate loans were better off than the borrower with the fixed rate more than 80% of the time, but this is usually because they fixed too late in the interest rate cycle.

We may have already passed that point – as SmartComapny reported last week, most banks have already raised their fixed mortgage rates in the last few months, blaming the rises on higher funding costs.