Investors rush to fix interest rates

As market uncertainty grows, more investors and borrowers are locking in fixed term interest rates.

RateCity says new data released by the Australian Bureau of Statistics (ABS) shows 3301 home loans were fixed in June.

“This compares to 3148 in May 2011 and was the highest month-on-month increase since December 2010, when borrowers were spooked by the large variable rate increases of November 2010,” RateCity says.

“Even more significantly, the proportion of fixed home loans was almost double that of June 2010.”

Western Australia had the biggest increase in fixed loans, followed by the Australian Capital Territory.

RateCity chief executive officer Damian Smith says lenders have already started competing aggressively in the fixed home loan market.

“Most lenders have been dropping their fixed home loan rates steadily this year, but we haven’t seen this level of fixed rate movement since the global financial crisis,” he says.

“We saw 17 lenders that have dropped some of their residential fixed home loan rates this week alone; the average three-year fixed rate has hit a new low of 7.2 per cent from 7.42 per cent in December 2010.

“The Commonwealth Bank’s new rates, especially their three-year fixed rate at 6.59 per cent, are market-leading and that’s a good thing for borrowers, especially when there’s so much uncertainty in the economy.”

RateCity’s statistics indicate fixed rate home loan applications made up 23 per cent of all loan applications in July, compared with 13 per cent in January.

“With the abolition of excessive early exit fees on variable rate loans, fixed loans have become more attractive for lenders,” Smith says.

“If variable rates move down, then obviously there’s always a risk that a fixed rate loan will leave you ‘above’ the market, so one option is to look at a split loan, where a proportion is variable and the remainder is fixed.”

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