Spooked homeowners rush to change their mortgages as fixed rate home loans hit record highs

Aussie homeowners are fixing their loans on a level not seen since the GFC as speculation mounts interest rates will rise.

Borrowers are rushing to fix home loans as speculation mounts that interest rates are set to rise.

Australian Bureau of Statistics (ABS) data shows the proportion of new loans and refinances using fixed rate products has steadily risen over the past 18 months, peaking at 47.1 per cent this July before falling off slightly to 45.3 per cent in September.

The July peak was the highest proportion on record and by some margin.

Before Covid came along, the previous highest was 25 per cent, back during the global financial crisis in 2008.

Homeowners are rushing to fix their home loans as speculation mounts that interest rates are set to rise. Picture: NCA NewsWire / Gaye Gerard

That was until May 2020, when it jumped from 22 per cent to 30 per cent in one month, as coronavirus restrictions and the accompanying stimulus began to come into effect.

“Fixed rate loans were much lower than variable rates during Covid,” REA economist Paul Ryan said.

“They were far more attractive than they’d ever been before.

“Now this is starting to unwind and fixed rates are on the way up while variable rates are starting to fall.

“You might see new borrowers gravitating to deals on variables, but with this fear that the RBA will raise rates sooner than expected, a lot of borrowers may still choose fixed.”

WHEN WILL INTEREST RATES RISE IN AUSTRALIA?

Before getting too carried away, it’s important to remember it has now been 11 years since the RBA last increased the cash rate.

Mr Ryan said that while markets are expecting multiple RBA cash rate increases over the next year, he believes the central bank would prefer a slow and steady approach and is unlikely to hike aggressively.

REA economist Paul Ryan.

“The RBA’s goal is that people have a bit less spending money, but they don’t want to put people into mortgage stress or default positions,” he said.

“They want to give households time to adjust. The amount of debt people have taken out means they won’t have to increase rates by as much as they used to, to have the desired effect of slowing things down a bit.”

WHY FIXED INTEREST RATES ARE ALREADY RISING

Recent hikes on fixed rate products should be put into context as they are only now just returning to their natural state of being more expensive than variable rates, said RateCity research director Sally Tindall.

“Fixed rates have been on the rise for months, but in recent weeks, rises have been turbocharged,” Ms Tindall said.

“It’s not a normal thing to see all four big banks hike rates twice in a month, but we do need to remember they are coming from a record low base.”

Ms Tindall said the current market is still conducive to fixing, as long as those loans suit a borrower’s needs.

“There are some very good deals for those looking to fix rates and now might be the time to do it,” she said.

First home buyers, Jake Wilson, 31 and his fiancee Henriette Dohnt, 34 brought their plans forward over rate rise concerns. Picture: David Swift

“But the cash rate is not going to skyrocket overnight, so don’t panic.

“You’ve got to pick a loan that suits your finances and suits your lifestyle. And there are a lot of people who fixing doesn’t suit.”

Loan Market mortgage broker Matt Clayton said first home buyers were fixing rates because they were the best deals they could get with loan deposits of 5 to 10 per cent.

“It’s important for people taking out debt to find a way to minimise payments and get ahead,” Mr Clayton said.

His clients, Jake Wilson and his fiancee, Henriette Dohnt, originally planned to buy their first home in 2022, but brought their plans forward over rate rise concerns.

“Our broker [Mr Clayton] suggested that we move now.” Mr Wilson said.

“So we did and two weeks after our finance was approved we bought our first home.”