Demand for fixed mortgages drops as buyers more confident on property outlook

Demand for fixed-rate mortgages is dropping, new figures from broker franchise Mortgage Choice reveal, with only 10.7% of approved home loans in February having a fixed rate, compared to 15.3% in January.

The result comes as weekend auction clearance rates reveal the market is continuing to perform at roughly the same level, suggesting demand is continuing to wane and that price growth will continue to be slow.

The Mortgage Choice figures show consumption of fixed-rate loans fell for the first time in four months in a majority of states by an average of 6 percentage points. Demand only grew in Western Australia by 1.2 percentage points.

Spokesperson Kristy Sheppard says the demand for fixed interest rates is at its lowest point since October last year, saying more buyers are attracted by the banks’ various efforts to compete for their business.

She also says the price of managing a fixed-rate loan has now become too great when compared to the various variable mortgage offerings.

“Certainly when you’re comparing fixed rate mortgages over variable mortgages, and paying a premium in order to fix, you can see why this change occurred. You can understand why borrowers are taking a chance on variable rates, and that drop says a lot about changes in sentiment.”

Sheppard argues the move away from fixed interest rates also may hint at an increase in consumer sentiment, given the next cash rate rise is now expected in the second half of the year.

“It’s a real buyer’s market at the moment. And first home buyers have come to realise that – we’ve had relatively stable interest rates since November. People’s wages are about to go up in the next three months, and you’ve got strong population growth.”

“Consumer sentiment is slowly improving, so you can understand why some people are taking that step in saying they will opt to work on a variable loan, rather than a fixed loan.”

The number of ongoing discount loans dropped by 2.1 percentage points, while demand for standard and basic variable rate mortgages increased by 3.9% and 1.9% respectively.

Sheppard also says sentiment among would-be buyers is also improving given prices have been stagnant for months. She says the main borrowing group so far is refinancers at 33%, followed closely by first home buyers at 30%

Sheppard says despite the lack of demand for properties overall, sentiment is improving and prospective home buyers are investigating the market.

“In February, refinances made up 33% of all customers, versus 30% first home buyers, 12% investors and others – that includes home upgraders, renovators and so on. We can see demand among first home buyers is increasing slightly.”

Meanwhile, auction results were mostly similar to last week’s performance.

In Melbourne, 565 homes were sold resulting in a clearance rate of 66%, with a total value of $439.6 million.

The Real Estate Industry of Victoria said in a statement that despite a third of homes not selling, “many real estate agents reported strong sales returning sale prices well above reserve”.

In Sydney, 221 properties sold with a clearance rate of $56.2%, with a total value of $222.6 million. Adelaide recorded a 40% rate with 23 sold, while Brisbane only recorded a 16.7% rate with four homes sold.