Borrowers have not rushed to fix interest rates despite the prospect of further rises this year, says John Flavell, CEO of Mortgage Choice. In fact, Mortgage Choice has seen the number of fixed-rate home loans decline.
Fixed-rate home loans accounted for 20.9 per cent of all loans written by mortgage broker Mortgage Choice in March, down from 22.2 per cent of loans in February.
Mortgage Choice chief executive officer John Flavell said he was “somewhat surprised” by the decline in the number of fixed rate home loans, considering that many Australian lenders have lifted interest rates in recent weeks.
Flavell told SCHWARTZWILLIAMS, "While interest rates have risen in recent weeks, it would seem the majority of borrowers are still keen to ride the variable rate wave."
Flavell said that even though interest rates have begun to rise, they are still very low by historic standards.
Borrowers "understand that interest rates are low and, even if rates rise further over the coming months, mortgage rates will still remain incredibly low by long-term standards," he said.
Flavell said he expects more people will lock in at least a portion of their borrowings at fixed rates when they realise that their mortgage repayments have increased.
"A lot of new borrowers may not even realise that rates have gone up in recent weeks," he said.
"When borrowers start to receive communication from their lender alerting them to the increase in their home loan rate and, in turn, their mortgage repayments, I think we could expect to see a greater proportion of borrowers looking to fix," Flavell predicted.
Flavell said most borrowers have a sufficient buffer in their repayments capacity to withstand higher interest rates, and so are not pressured to act immediately as rates rise.
"While the majority of borrowers are opting for a low variable rate mortgage, when they apply for finance, their preferred lender uses a 'floor rate' to determine loan serviceability," said Flavell.
In most cases, a lender’s 'floor rate' is 7 per cent or higher.
"So in other words, borrowers have to prove they can service their mortgage if their interest rate was 7 per cent, otherwise their application for finance will be rejected," said Flavell.
"Borrowers are incredibly savvy. They are not going to put themselves in more debt than they can handle," said Flavell.
In the last few weeks, many Australian lenders have increased their variable home loan interest rates, some by as little as 3 basis points, while others by as much as 20 basis points.
Flavell said rates are likely to continue moving higher this year.
“There is no doubt that interest rates will continue to rise over the short to medium term," he said.
"I think we will see more borrowers looking for interest rate stability and security,” he said.
Flavell said home loans are still "incredibly affordable", even if lenders do increase their home loan rates again.
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