Interest rate cut in sight

Warren O'Rouke

Australian borrowers are taking the hint from the Reserve Bank of Australia (RBA) that an interest rate cut could be in sight and are showing increasing demand for basic variable rate loans.

According to mortgage broker Mortgage Choice, the demand by Australian borrowers for basic variable rate loans rose to 33 per cent of all approvals in July, the highest level in over two years. This is also higher than the 12-month average for approvals for this type of loan of 22 per cent.

“Of particular interest to home loan borrowers was the recent indication by the Reserve Bank of Australia (RBA) that there is scope to move towards a less restrictive stance on monetary policy, which should be good news for mortgage interest rates,” said Mortgage Choice national corporate affairs manager Warren O’Rourke.

The July 2008 Mortgage Choice housing loan approval data also shows that during the same period, only 11 per cent of approvals were for fixed rate loans. This is in comparison to an approval rate of 15 per cent in June and a 12-month average of 29 per cent.

According to O’Rourke, fixed rate demand was at its peak in November last year, commanding 41 per cent of all approvals, with the basic variable loan demand at that time sitting at only 19 per cent.

“Of note was Western Australia, which set the pace with only 7 per cent of all approvals [for fixed rate loans], down from 20 per cent in June,” O’Rourke said.

“This trend also confirms the view held by many borrowers that interest rates are nearing the top of the cycle.”

And despite a number of lenders increasing their variable interest rates independently of RBA rate rises, demand for standard variable home loans decreased only slightly, and remains at 45 per cent of all Australian loan approvals, higher than the 12-month average of 38 per cent.

O’Rourke said demand for this category of loan continues to be driven by the discounts offered by lenders for loans of $150,000 or more.

O’Rourke pointed to a favourable supply/demand curve and a historically low national rental vacancy rate as evidence of “a positive outlook for existing and potential property owners, both owner-occupied and investment”.