Fixed loans no longer popular

The proportion of new loans being fixed in entirety or as a proportion of the total loan has now fallen to record lows.

In April, just 15.6 per cent of loans had a fixed interest rate component. This compares to August 2021 when it peaked at 59.2 per cent.

The peak in August 2021 is interesting in that it was still some time before interest rates started to rise but there was growing talk of an end to ultra-low interest rates. It was likely that it was at this time that banks started increasing their fixed rate interest rates. By the time interest rates started rising in May 2022, the proportion of new loans being fixed had more than halved.

For now, it is likely that the proportion of mortgages with fixed loan components will continue to remain low. Last week, inflation came in at seven per cent with the quarterly rate the lowest it has been since the end of 2021. The most significant driver of downward pressure on the rate of growth was a decline in international travel and furniture. Construction costs continue to be a driver of growth but the rate of growth is now slowing.

Tomorrow we have an interest rate announcement. As of writing, the market was pricing in a hold with it increasingly looking like the next movement in rates will be downwards. If fixed loan rates are priced accordingly, we may start to see more people fixing their home loans again.