Don't wait for fixed rate loans

WITH interest rates at historic lows, Gen Y buyers are picking now as the ideal time to lock in a fixed rate mortgage.

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Most of the first-home buyer incentives have gone, but some determined young purchasers have found a way to fix their place on the property ladder.

Industry insiders say current low rates are just the carrot on a stick to give uninitiated buyers confidence -- and fixing them for one to two years could seal the deal.

L Janusz Hooker, LJ Hooker deputy chairman, said now was the time to lock in a fixed rate mortgage.

"Fixed loans have become increasingly popular with younger buyers who are prepared to do the maths and push for a better deal,'' he said.

"Home loans traditionally are like a storage unit, once you have your gear stored, you leave it in there and few bother changing loans for a better, cheaper deal.''

For Gen Y buyers, who are generally on growing incomes, confidence in knowing what the mortgage bill will be each week, fortnight or month is key.

Although he still lives with his parents, James Gold, 26, bought his first investment property in Saratoga four years ago and is now househunting for a second. He said low fixed rates have been a big motivator.

"I'm definitely going to fix this one. The rates are so good at the moment, even if I fix at 4.99 per cent and they go down a bit, I'm not going to be greedy -- that's a great rate,'' he said.

"My first property was negatively geared, but now that the rates have dropped it's pretty much neutral. This time around I'm going to aim for a positively geared investment.''

Mr Hooker said it was highly likely at some point in the next year the all-time historic low fixed home loan rates would start to move up.

"It is very hard to pick the very bottom of the easing cycle,'' he said.

Paul O'Regan, head of LJ Hooker Home Loans, said even with the predicted drops, it is unlikely there will be better deals than those on offer now.

The current interest rate of an LJ Hooker home loan, fixed for one, or two years, is 4.99 per cent. Several lenders have fixed rates for owner-occupiers sitting under the 5 per cent mark, making them cheaper than most variable rates and at the lowest levels in decades.

As a flexible generation, Gen Y are also making the most of split, or "cocktail'' loans where half is fixed and the other half is variable.

John Symond of Aussie Home Loans said despite a recent study showing over the past 20 years homeowners would have been better off sticking to variable rates than fixed, today's economy is a different beast.

"There are fixed rates out there now that are half a per cent lower than variable rates, so blind Freddy could see that it's a good idea to fix at 4.95 per cent,'' Mr Symonds said.

"I think rates will stay where they are for a couple of years.

"But first-home buyers need to take less risk....They need to budget for at least a 2 or 3 per cent rate rise -- it's very dangerous to max yourself out at the start of a loan."

Mr Symonds said a one-year to two-year full fixed, or split loan, would be best for first-time borrowers.