Last fortnight in our commentary regarding the Reserve Bank’s decision to maintain the current cash rate at 2.50%, we discussed the unprecedented move from three of the four major banks, promoting fixed rate products under 5%.
Reflecting a rosy optimism that this current low interest rate environment will continue well into the future and a hyper-competitive lending market, the Commonwealth pipped the other players at the post, announcing a 4.99% fixed rate product. And it didn’t take long for the others to follow suit with their own efforts to win over new borrowers.
Interestingly, recent housing finance data suggests that demand for fixed rate mortgages is on the decline. Information from the Australian Bureau of Statistics reveals an uptake of just 14.3% of fixed rate mortgages for new housing commitments in June this year, compared with 17.9% in June 2013.
Given that today’s consumers are far savvier when it comes to the underlying economic fundamentals that drive our markets, thanks to the wonderful world of digital information, this is hardly surprising.
Property punters in Australia are confident that local and international events and economic tidings will see the RBA continue to act conservatively for some time to come.
As such, most mortgage seekers are content to stick with more flexible, variable rate offerings and borrow that little bit more to secure the home or investment of their dreams – with the average loan size climbing by 7.4% from $304,500 to $327,000 over the 12 months to June.
So could this dwindling lack of interest (pardon the pun) in their fixed rate offerings have been the catalyst that convinced the big boys to attempt one last product reduction push to lock borrowers in for a fixed rate term?
And if so, this then begs the question…where do they think interest rates will be heading in Australia over the next three to five years?
While these questions remain unanswered for the time being, one thing is certain; borrowers who are in a strong financial position right now should be feeling quietly confident about striking a pretty good property investment or home loan deal.
Given that new housing finance commitments increased from $26.8billion in January to $27.7billion in June – an increase of 3.4% – lenders will be doing all they can to secure and retain your business. Don’t be afraid to play their game.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).