June 2009 Survey - Home loan rates: Where are they headed?

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. After recent rate cuts by the RBA and major lenders, we calculated an average standard variable rate of 5.76% as at June 2009. These predictions by no means reflect where the rates will be for the banks or other lending institutions surveyed, and are instead intended as a guide. Forecasts may have changed since the time of the survey, as at 15th June 2009.

 

Institution	Spokesperson	End of Sept 2009
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%
Mortgage Choice	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 P/L	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

Where will the average standard variable interest rate be by July 2009?
“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. You also need to consider the break costs involved, which can be quite high, depending on when you fixed and how long you fixed for and the movement in rates since you fixed.

People have turned to variable rate loans in a big way over 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. Fixed rate loans represented only 4% of all approvals. At present, basic variable loans are 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, Mortgage Choice Limited

“I would never recommend fixing your entire loan, but fixing a portion is recommended – based on your personal situation. I would suggest waiting until the end of the September quarter to do so. 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. This will change as borrowers realise that short rates may not fall much further. However, fixed rates have risen too. 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. Therefore it is likely that we have seen the bottom of the fixed rate cycle. Historically, fixed rates in the low to middle 6% range are still relatively low, so locking in part of your borrowings should remain a consideration. 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. The time to take out a fixed rate is usually before the variable rates hit bottom. It is an inexact science, but considering we have seen increases in fixed rates recently it would appear that we may have just missed the best fixed rates. Having said that, there are still some good fixed rates on offer in the marketplace. Consumers also need to make sure they understand the limitations and general lack of flexibility that come with most fixed rate products and possible high exit costs if they need to exit or alter the loan during the fixed period. 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. Overall, variable mortgage rates will probably be around the same level, which is historically very low. There is no right or wrong answer to fixing as it depends on the circumstances of individual mortgage holders. If you are after peace of mind and feel that peace is enhanced by fixing a portion of your loan then it is a good time to start looking at that option. 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 continues to rise and business and consumer confidence slumps again, the RBA still has some room to move with 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. This would leave them with the flexibility of a fully-featured transaction standard variable split as the other account.

There is still some very aggressive pricing around standard variable loans. 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 remain variable, but they should consider voluntarily increasing their monthly commitment (by say $150) and using this incremental amount as a buffer for a later date when interest rates rise. Repayments in excess of the contractual amount would normally reduce the amortisation period [save years off your mortgage]”