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Australians demand longer term fixed rate home loans

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Sydney, 24 May 2017: Australians are eager to lock in their home loan rate as increasing uncertainty about interest rate rises continues to circulate in the broader market. According to research released today by Gateway Credit Union (Gateway), 35.3 per cent of Australians looking to take out a home loan would opt for a fixed rate loan, ahead of a split rate home loan (34 per cent) or a variable rate home loan (30.7 per cent).

Gateway CEO, Paul Thomas, 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,” said Mr Thomas. “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 consumers would fix their rate, Australians clearly favour longevity with over half (55.9 per cent) choosing 5-years, followed by 3-years (23.1 per cent), 2-years (15.1 per cent) and 1-year (5.9 per cent).

“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. 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,” said Mr Thomas.

The findings went further to substantiate Mr Thomas’ thinking, with an overwhelming 71.3 per cent of respondents stating they would like lenders to offer longer-term fixed rate products. Nearly half of respondents (46.4 per cent) would like lenders to offer a 10-year fixed rate home loan.

Of the major cities, Sydney-siders were most eager to lock in a fixed rate home loan with 40.1 per cent saying they would choose this product over a variable or split rate product. Brisbanites followed closely with 35.1 per cent, followed by Melbourne (33.3 per cent), ACT (26.3 per cent), Adelaide (25.8 per cent), Perth (21.1 per cent) and Hobart (18.2 per cent).

“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,” said Mr Thomas.

Of the generations, the results reveal the younger cohort (18 – 29 years old) are most inclined to take out a fixed rate home loan with 40.8 per cent saying they would choose that product over a variable or split rate home loan. This was followed by the 50+ age bracket at 36.4 per cent, and the 30 – 49 age bracket at 30.9 per cent.

“People in a younger and some older age demographics can have less disposable income – being at the beginning of their careers or transitioning into retirement – so it would make sense that they’d be the age brackets most interested in locking in their home loan rate. It could offer them stability and a better opportunity to budget their finances,” said Mr Thomas.

“Borrowers clearly want certainty and are looking to insulate themselves from unexpected shocks, whether that be with a fixed rate home loan or hedging their bets with a split rate. Regardless, what these results ultimately reveal is that Australians might just be worried and this is influencing their decisions when it comes to their home loan,” concluded Mr Thomas.

Key findings summary:

·         A fixed rate home loan was the most popular option:

o   35.3% of Australians looking to take out a home loan would choose a fixed rate home loan

o   34% of Australians looking to take out a home loan would choose a split rate home loan

o   30.7% of Australians looking to take out a home loan would choose a variable rate home loan

·         The younger cohorts were most inclined to choose a fixed rate home loan:

o   40.8% of people aged between 18 – 29 years would choose a fixed rate product if they were to take out a home loan

o   36.4% of people aged 50 years or above would choose a fixed rate product if they were to take out a home loan

o   30.9% of people aged between 30 – 49 years would choose a fixed rate product if they were to take out a home loan

·         The Eastern seaboard capital city residents are most inclined to choose a fixed rate home loan:

o   40.1% of Sydney-siders would choose a fixed rate product if they were to take out a home loan

o   35.1% of Brisbane residents would choose a fixed rate product if they were to take out a home loan

o   33.3% of people living in Melbourne would choose a fixed rate product if they were to take out a home loan

o   26.3% of people living in ACT would choose a fixed rate product if they were to take out a home loan

o   25.8% of Adelaide residents would choose a fixed rate product if they were to take out a home loan

o   21.1% of Perth residents would choose a fixed rate product if they were to take out a home loan

o   18.2% of people living in Hobart would choose a fixed rate product if they were to take out a home loan

·         A longer-term fixed rate home loan was the most popular option:

o   55.9% of respondents would take out a 5-year fixed rate home loan

o   23.1% of respondents would take out a 3-year fixed rate home loan

o   15.1% of respondents would take out a 2-year fixed rate home loan

o   5.9% of respondents would take out a 1-year fixed rate home loan

·         71.3% of respondents would like lenders to offer longer-term fixed rate home loans:

o   46.4% would like 10-year fixed rate home loans to be offered

o   15.8% would like 20-year fixed rate home loans to be offered

o   15.8% would like 30-year fixed rate home loans to be offered

o   14.3% would like 15-year fixed rate home loans to be offered

o   7.7% would like 25-year fixed rate home loans to be offered

 

END

About the research

The research, commissioned by Gateway and conducted by Ipsos, was compiled through the May omnibus, which polled 1,039 respondents across Australia.

About Gateway Credit Union

Gateway Credit Union is one of Australia’s leading customer-owned banking institutions, serving as a trusted financial partner to its Members for over 60 years’. With over 30,000 Members across the nation, it offers award-winning personal banking products from home loans, car loans, and personal loans to fee free bank accounts, high interest savings accounts and term deposits. With a strong focus on empowering its Members to achieve their hopes and dreams, the Gateway name is synonymous with trust, transparency and reliability. To find out more visit www.gatewaycu.com.au