Aussies prefer fixed-rate home loans

A significant percentage of home loan borrowers are eager to lock in their rates due to unpredictable interest rate rises.

According to new research released on Wednesday by Gateway Credit Union, 35.5% of Aussies looking to take out a home loan would opt for fixed-rate loans, ahead of split-rate home loans (34%) and variable-rate home loans (30.7%).

Paul Thomas, CEO of Gateway Credit Union, believes the findings suggest borrowers have been impacted by the constant speculation around changing market conditions.

“We know property prices are sky high …compound that with low wage growth, high levels of household debt and out-of-cycle rate hikes and you can expect that consumers might be worried about maintaining a loan, especially if they have no control over repayments because of a fluctuating rate,” he said. “A fixed-rate home loan means borrowers would have peace of mind in uncertain times and the findings suggest that it’s a key consideration right now.”

When asked how long they would fix their rates, respondents clearly favour longevity. Over half of respondents (55.9%) chose five years, followed by three years (23.1%), two years (15.1%), and one year (5.9%).

“Borrowers have enjoyed low rates for quite some time, but the results suggest that we may be in for tougher times ahead. What’s interesting to note is the long-term option was by far the most desired over shorter-term loans,” Thomas said. “We all know the RBA is likely to raise rates, but these findings suggest borrowers think that once rates start to shift upwards they won’t be coming back down again for some time”.

The majority of respondents (71.3%) stated they would like lenders to offer longer-term fixed-rate products, and nearly half of respondents (46.4%) said they would like lenders to offer 10-year fixed rate loans.

Of the major cities, residents of Sydney were the most eager to lock in fixed-rate home loans, with 40.1% saying they would choose this product over variable-rate or split-rate products. Residents of Brisbane came in second (35.1%), followed by those of Melbourne (33.3%), ACT (26.3%), Adelaide (25.8%), Perth (21.1%), and Hobart (18.2%).

“It isn’t surprising seeing Sydney top the list given it has the most heated property market of the capital cities. Demand for fixed-rate loans seems to be fairly congruent with property prices around the country,” Thomas said.