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Aussies predict home loan rates to spike in the next 3 – 6 months

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Market uncertainty drives demand for fixed rate products

Sydney, 05 June 2017: Despite many commentators predicting the RBA will keep the cash rate steady at tomorrow’s monthly meeting, Australian mortgage holders are sensing there may be another spike in home loan interest rates by the end of the year.

According to research from Gateway Credit Union (Gateway), almost one in five respondents with a variable or split rate home loan are looking to make the switch to a fixed rate.

The research went on to reveal that of those looking to make the switch, 38 per cent said they would do so in the next 3 – 6 months, followed by 24 per cent saying they would do so in the next 6 – 9 months.

Gateway CEO, Paul Thomas, said the results could be indicative of the rising financial pressure households are under.

“We’ve seen plenty of research that shows household debt is at all-time highs but our research could suggest that a rise in home loan interest rates may very well tip some households over the edge financially which is why borrowers might be seeking the certainty of a fixed rate home loan,” said Mr Thomas.

“It seems borrowers are betting that rates will be on the rise towards the end of the year or early next year. However, mortgage holders who are concerned about covering their repayments if rates were to rise should be thinking about locking in a fixed rate sooner rather than later to take full advantage of the historically low rates. Often people consider a fixed rate home loan when rates are high, but by that time it’s too late.” 

When it came to gender, the research revealed men were more inclined to switch their home loan to a fixed rate product compared to women (22.4 per cent vs. 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,” said Mr Thomas.

From a geographical perspective, regional homeowners’ desire to switch to a fixed rate home loan far out-weighed their metropolitan counterparts (18.8 per cent vs. 38 per cent).

“Regional communities can be more susceptible to economic shocks than capital cities. The lack of financial resilience in these areas can make homeowners far more vulnerable to volatility such as rising interest rates,” Mr Thomas commented.

“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 level of household debt are all converging to create an environment where borrowers need to act with caution. The beauty of fixed rate products is their ability to secure certainty and to help households avoid financial distress,” concluded Mr Thomas.

Key findings summary:

  • 18.5% of Australians with a mortgage are planning to switch to a fixed rate home loan
  • When asked when they planned to switch to a fixed rate home loan:

o   38% said they plan to do so within the next 3 – 6 months

o   24% said they plan to do so within the next 6 – 9 months

o   16% said they plan to do so within the next 9 – 12 months

o   12% said they plan to do so within the next 3 months

o   10% said they plan to do so in 12 months or longer

  • 22.4% of males said they are planning to switch to a fixed rate home loan compared to only 14.7% of females
  • 38% of regional homeowners said they are planning to switch to a fixed rate home loan versus 18.8% of metropolitan homeowners.
  • 22.6% of Sydney homeowners said they plan to make the switch to a fixed rate home loan, followed by ACT (20%), Perth (19.4%), Melbourne (17.7%), Hobart (16.7%), Adelaide (15%) and Brisbane (14.8%).
  • 32.6% of people aged 18 – 29 with a home loan plan to switch to a fixed rate product, followed by 20% of people aged 30 – 49 and 9% people aged 50 years or older.

 

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.