cash-rate cuts since the first COVID outbreak in March last year, which resulted in the proportion of fixed-rate home loans soaring from about 13 per cent to more than 47 per cent. Meanwhile, the proportion of new fixed rates typically floats between 10 and 20 per cent.
Some of the key factors which have contributed to this state of affairs include a sharp decline in interest rates, as well as fears about the financial impact of the pandemic which caused borrowers to seek additional security.
Amid the global health crisis, the one year fixed rates offered by Australia’s big four lenders dropped from 2.98 per cent to 1.99 per cent, while small lenders are also offering ever cheaper loans for borrowers with a regular income and a 20 per cent deposit. Now, with the economy beginning to recover, and bond yields continue to increase, the likelihood of more cuts continue to decline, and therefore, borrowers are rushing to fix their loans, typically for two or three years.
“Borrowers are beginning to realise that rates have hit the bottom,” Chris Foster-Ramsay, principal of Foster Ramsay Finance, noted.
Brokers are comparing this fixed-rate boom to that experienced before global financial crisis, when borrowers anticipated increases in interest rates to calm overheating markets. “The GFC took hold of our market and the Reserve Bank of Australia took an axe to the cash rate, leaving lots of fixed rate homeowners high and dry because they were stuck on what were suddenly high-rate loans,” Sally Tindall, research director of RateCity, said.
