Banks flood the market with fixed rate home loans

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More than 30 lenders have launched 115 three-year fixed rate home loans to boost property demand that slumped due to subdued demand from overseas and first home buyers.

The number fixed rate loans launched within the past month is nearly four times as many as variable rate launches in spite of the prospect of more base rate cuts in the near future. In fact, more fixed rate offerings are expected in the coming weeks as bank borrowing costs remain at 1.6 per cent, enabling them to lock in on big margins.

According to some lenders, they are being overwhelmed by lender applications, leading them to hire more staff for processing and increasing overtime. Some of these lenders are being closely watched by the Australian Prudential Regulation Authority due to chronic servicing delays caused by computer problems.

“There is intense competition in a market where mortgage flows are slowing,” said Martin North, principal of research firm Digital Finance Analytics. “Refinancing and investment lending are the targets.”

According to an analysis by the Reserve Bank, more than one in four mortgages held by lenders have been refinanced in the past 12 months, meaning investment lending is growing faster than owner-occupied lending. Nearly three times as many lenders have moved to cut three-year rates than five years, as analysts regard three years as ‘the sweet spot.’ The average three-year interest rate is about 4.21 per cent, compared to 4.28 per cent for one-year fixed rates.

“The market is pricing in an additional cut--or cuts-- to the cash rate as reflected in the yield curve,” said John Flavell, chief executive of Mortgage Choice. “Overall expectations are for lower cash rates for longer in Australia and globally.”

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