29 May 2008

Big Drop in Fixed Rate Loans

Prior to the recent ratc rise, brokers were expected to begin to notice a dip in the number ofborrowers taking out fixed ratc home loans, according to the latest Australian Finance Group (AFG) Mortgage Index figures. ll1c index revealed that sales offixed rate loans through its member brokers in]uly fell to the lowest level in nearly two years – a statistic AFG puts down to confident borrowers.

“While we should be careful not to read too much into a single month’s data, it would secm that property buyers just aren’t being spoDked by the rate rise speculatiDn,” said AFG general manager of sales and Dperations, Mark Hewitt.

“When it comes to making hard-nosed buying decisions, they’re voting with their w,lI1ets in favour of a scenariD in which rates won’t risc, Dr if they dD, nDt by enough tD cause much pain.”

The number ofbuyers opting for fixed rate loans fell from 20.4% in June to 16.5% in July – the lowcst figure since October 2005.

However, head DfThe Mortgage Professionals Michael Nicholson said that despite the bDrrower confidence in decreasing interest rates, hc would never advise his clients to go one way or another with a fixed or variable rate home loan.

“They [brokers] shDuld stipUlate what the pros and cons are ofeach, what the benefits and features are ofeach and then let the client make that final decision/’ Nicholson said. He added that if the client was still unsure, brokers should recommend fixing a proportion of the loan.

Managing director ofMortgage House Ken Sayer agreed, saying it was “impossible for anyone to know what the interest Tates arc going to do in the future”. “Ifthe client needed a fixed rate I’d try and do a combination, half-fixed half-variable sort of thing,” he said.

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