June 2009 Survey: Home Loan Rates: Where Are They Going?

We asked our panel of Australia’s leading economists and mortgage industry experts for their thoughts on where the average standard variable rate will be at the end of July 2009, and whether borrowers should consider fixing or staying variable. As of June 2009 the average standard variable rates was 5.76%. This is despite rate reductions by the RBA, major lenders, and other factors. These forecasts may not reflect actual rates at banks and other lending organizations. Forecasts can have been changed since 15 June 2009.

 

Institution	Spokesperson	September 2009 – Ended
BT Financial Group	Chris Caton	5.60%
AMP Capital Investors	Shane Oliver	5.51%
RBS Group (Australia).	Martin Lynch	5.86%
SFE Loans	Sarah Eifermann	5.26%
Collins Securities	Rob Emmett	5.26%
A mortgage is an option.	Kristy Sheppard	5.70%
CommSec	Craig James	5.76%
ASFM	Iain Forbes	5.91%
Peach Home Loans	Nicholas Gruen	5.76%
Mortgage House	Ken Sayer	5.80%
Access Loans	Darryl Simms	5.51%
Professional Mortgage Providers	Dean Mathieson	5.51%
HIA	Harley Dale	5.76%
Property Planning Australia	David Johnston	5.51%
BIS Shrapnel	Richard Robinson	5.30%

Source: Your mortgage

What is the July 2009 average variable rate of interest?
“If your situation sees you needing peace of mind over repayments then fixing part or all of your loan is worth considering. You need to keep in mind that fixed-rate loans are often less flexible – not only with the nature of the interest rate but also with the features on offer. Plus, they may be more ‘expensive’ in terms of interest rate. This will almost certainly be the case within the next few months, thanks to long-term funding costs for lending institutions being on the rise – ie, it costs more for them to borrow money to lend on to customers for a fixed term of, say, three, four or five years than it does to lend over a much shorter period. The rate changes and the length of the loan can affect the break costs.

Variable rate loans have become very popular in the past 18 months. Looking at Mortgage Choice’s customer database, loan approval data for April showed an almost exclusive demand for variable rate loans – they make up 91% of our loan approvals, nationally. Only 4% of fixed rate loans were approved. These basic variable loans are becoming more popular than standard variable products.

Variable loans do tend to be more flexible in nature – not just with the interest rate but also with the range of loan features on offer. With a variable loan, keep in mind that you can take advantage of any falls in interest rates but you will find yourself having to increase your repayments if rates rise”
Kristy Sheppard, Senior Corporate Affairs Manager at Mortgage Choice Limited, is Kristy

“I would never recommend fixing your entire loan, but fixing a portion is recommended – based on your personal situation. This change should be made by September quarter’s close. By doing this you should get the best possible fixed rate, and still have a portion which is variable so you can actively make extra repayments in an effort to lower your personal debt”
Sarah Eifermann, mortgage broker, SFE Loans

“Fixing decisions should relate more to your personal situation rather than trying to guess which way the wind is blowing. I recommend talking to a financial planner before taking out a fixed rate”

 

“The share of new borrowers currently taking a fixed rate is close to a record low. Once borrowers realize that the short rates may not fall much further, this will change. Fixed rates have also increased. Taking a fixed rate will buy some insurance, but not much else”

 

“The ideal time to start fixing was two months ago when fixed rates were much lower. That said, they are still historically low and given the risk that we have seen the low point in interest rates, there is a still a case to at least start locking in to fixed rates now – leaving scope to do a bit more in the next six months if fixed rates dip back down again”

 

“Interest rates on fixed rate loans have risen quite sharply over the four to eight weeks up to the middle of June. The bottom of the fixed-rate cycle is likely to have passed. Historical low fixed rates have ranged from low to mid-6%. It is worth locking in a percentage of your borrowings. Ultimately you should make the decision that makes you feel most comfortable irrespective of what interest rates will do in the future”

 

“If you are long funded then now is a good time to consider fixing a portion of your loan. Maintain enough of a variable portion that you believe you can reasonably pay down during the fixed period elected”

 

“We feel that variable rates are very close to bottoming out, and even though we know they will definitely rise again, indications are that the increases will be gradual – at least in the short term. Fixed rates are often available before variable rates hit their bottom. Although it is not an exact science and there have been rises in fixed rate in recent months it seems we may have missed the best fixed rate. There are still excellent fixed rates on offer. Fixed rate products have limitations and restrictions that can make it difficult for consumers to exit. Having given thought to the above, it would be wise for consumers to at least consider, after discussions with a professional broker, fixing part or the majority of their borrowings, dependent on their individual situation and future plans”

 

“We have a Reserve Bank that in June was biased towards easing interest rates at the same time as major banks were making noises about lifting variable mortgage rates. Variable mortgage rates will likely stay the same as they have been historically, which is very good. There are many ways to fix a mortgage. Each individual’s circumstances will determine the best way to fix a mortgage. If you need peace of mind, it is worth looking into resolving a portion or the entire loan. Go for a five-year fixed rate (or even longer) rather than a three-year rate”
Harley Dale, Chief Economist, HIAi

“There still seems to be a lot of bad news coming from overseas economies. If unemployment rises or consumer and business confidence fall again, the RBA can adjust rates. Because the banks have raised their fixed rates over the last couple of months, borrowers could fix a portion of their home loan – depending on their particular circumstances. Borrowers would still be able to use the standard variable transaction account, which has all the features of a full-featured account. They also have the option to split the balance.

Standard variable loans are still very expensive. It would pay to shop around for one of the best standard variable rates, if you are uncomfortable with the idea that rates may be going up because of the rises recently in the banks fixed rates then fix a portion of your loan and focus on getting the standard variable portion paid off as quickly as possible”
Dean Mathieson – Professional mortgage providers

“The five-year projection is already high, and fixed rates have increased. Borrowers should be flexible but they should increase their monthly commitment to $150 to increase their buffer against rising interest rates. If there are higher repayments than the contractual amount, the amortization period will usually be shorter. [save years off your mortgage]”