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Fear of further rate hikes drives spike in fixed-rate mortgages

One of Australia’s largest aggregation groups has seen a significant increase in fixed-rate home loans being written in the first three months of 2016.

The latest AFG Mortgage Index, released last week, showed that fixed-rate home loan products peaking at 17.7 per cent of the group’s total volume for the quarter.

By comparison, the percentage of those fixing their rates in the first quarter of the 2015-2016 financial year was as low as 11.4 per cent.

“With sections of the money market making the call of a rate cut in the coming months, there are some very attractive fixed rates available. With rates being at historical lows, the downside risk of fixing is relatively small so many borrowers are choosing to lock in now,” AFG general manager sales and operations Mark Hewitt said.

“Despite this month’s decision by the Reserve Bank of Australia to leave the cash rate on hold at a record low 2 per cent, there are also no guarantees lenders won’t make their own moves outside the RBA cycle,” he said.

“Some are talking about increased funding and regulatory costs and locking the low rates in now is a way borrowers can insulate themselves against any out of cycle increases by the banks.”

Bank of Queensland (BOQ) will this week increase its variable home loans for both owner-occupiers and investors.

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Effective 15 April, the regional bank will raise its variable rates by 25 basis points for investors and by 12 basis points for owner-occupiers.

While the first round of rate hikes mid-last year saw two-tiered pricing introduced by banks in an effort to cool investor lending, AFG has seen a renewed appetite among the banks for investor home loans in the first three months of this year.

“This quarter has also seen investor numbers on the rise again, with an increase from 31 per cent of AFG’s total volume to 33 per cent as lenders return to the investor market having fallen below the growth cap set by the regulator last year,” AFG’s Mr Hewitt said.

AFG has seen LVR’s continue to fall, which Mr Hewitt said is a positive message for the health of the lending market.

“The average LVR (loan to value ratio) of 68 per cent is the lowest it has been for three years,” he said. “This means homebuyers are continuing to borrow within their capabilities.”

[Related: Rate hikes rapidly changing borrower attitudes]


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