Fixed rate mortgages more popular

RECENT interest rate hikes and the prospect of more to come have has seen the popularity of fixed rate mortgages take off, new figures suggest.

Fixed rate mortgages more popular

RECENT interest rate hikes and the prospect of more to come have has seen the popularity of fixed rate mortgages take off, new figures suggest.

Data from financial research service Cannex showed that in November last year more than 28 per cent of all Australian mortgages had their interest rates locked in.

That was up from 27 per cent in October and about 17 per cent two years ago.

Cannex senior financial analyst Harry Senlitonga said the proportion of fixed rate mortgages would continue to increase, given the growing consensus of a further move from the Reserve Bank of Australia (RBA) in 2008.

"We expect fixed rates are still going to climb up, in terms of market share," Mr Senlitonga said.

Further evidence of a trend away from variable rate mortgages came from the Mortgage and Finance Association of Australia (MFAA)/BankWest home finance survey.

It found the percentage of people looking to borrow or refinance an existing loan who would take out a fixed rate mortgage had risen to 32.4 per cent, from 28.3 per cent six months ago.

And given the RBA's three interest rises, the number of people seeking a variable rate mortgage is down 7.6 in the past 12 months, to 17.3 per cent.

Aside from a looming rate hike, which may land as early as next month's RBA board meeting, the banks have started pushing up their own lending rates independent of any central bank decision.

The National Australia Bank was first, taking its rates up 0.12 percentage points, closely followed by ANZ (0.2 percentage points) and Commonwealth Bank (0.1 percentage points), St George (0.2 percentage points) and Westpac (0.15 percentage points).

All cited increased borrowing costs.

Although it protects borrowers against a rate rise, Mr Senlitonga said it was important to understand all the conditions of a fixed rate loan.

"There is less flexibility offered on fixed-rate mortgages," Mr Senlitonga said.

"If you take a loan for three years and after two years you sell the house or you want to refinance, there will be a cost associated with closing that loan due to the contractual agreement that you have with the bank.

"You don't have that with a variable rate loan."

Also, many banks have already factored in another rate rise this year, meaning their fixed loan interest rates are higher than the standard variable rate.

MFAA chief executive Phil Naylor said he was not surprised about the growth in fixed rate mortgages.

"The results from the survey are distinct indications of the instability and uncertainty in the market at the moment," Mr Naylor said.

"I understand there is concern in the market about the prospect of another rate rise in February and that this may be fuelling a rush of people licking their rates in."

Mr Naylor said almost 40 per cent of mortgage holders will be "uncomfortable or very uncomfortable" with another 0.25 per cent rate rise.