From The Real Estate Conversation.
Despite most economists predicting the Reserve Bank board will leave rates on hold at today’s board meeting, many Australians expect mortgage rates will rise this year, and are considering switching to fixed rate loans.
Despite most economists predicting the Reserve Bank board will leave rates on hold at today’s board meeting, many Australians expect mortgage rates will rise within six months, and are considering switching to fixed rate loans. The trend towards fixed-rate mortgages was strongest amongst young Australian homeowners.
A new survey by Gateway Credit Union shows that almost one in five respondents with a variable or split-rate home loan are considering making the switch to a fixed-rate loan.
Gateway CEO, Paul Thomas, said the results could reflect increased household financial pressure.
Household debt is at all-time high, said Thomas, adding that “a rise in home loan interest rates may very well tip some households over the edge financially.”
“Borrowers might be seeking the certainty of a fixed rate home loan,” said Thomas.
The research revealed that men were more likely to switch to a fixed-rate home loan than women (22.4 per cent compared with 14.7 per cent).
“Traditionally women tend to be more risk averse than their male counterparts when it comes to investment decisions. However, it seems like men may be more conservative when it comes to home loan repayments, opting to hedge their bets,” suggested Thomas.
Younger Australians were most likely to be considering shifting to fixed-rate loans. Of survey respondents aged between 18 and 29, 32.6 per cent were considering switching, compared with 20 per cent of those aged between 30 and 49, and only 9 per cent of those aged 50 or older.
Thomas said the fact that Australians are considering shifting to fixed-rate loans indicates that homeowners are feeling cautious.
“The fact that mortgage holders are looking to switch their home loans to fixed rate products over the next 3–9 months just goes to show that there is a sentiment of concern. Factors such as out-of-cycle rate hikes, the new bank levy, stagnant wage growth, and high levels of household debt are all converging to create an environment where borrowers need to act with caution,” he said.
Fixed-rate loans “secure certainty and help households avoid financial distress”, said Thomas.
