Fixed rate mortgages make up 16.6% of loans in September, but expert says buyers might be better off waiting

A significant proportion of new home loans are being written as fixed rate mortgages but some experts suggest home buyers are moving too early and would fare better by waiting for interest rates to fall even further.

Those comments come as the Reserve Bank prepares to make a decision on interest rates this afternoon, with property experts tipping rates to stay on hold in the hope that a stable rate environment would boost activity in the sector.

New figures from Australian Finance Group show that 16.6% of loans processed in September were fixed rates compared to 9.4% during August.

The group points out that the last time fixed rates were popular was in April 2008, when fixed rates were 18.4% of all loans.

The figures show that buying remained strong in New South Wales, Western Australia and Queensland, with new home buyers accounting for 18.9%, 17.4% and 15.8% respectively but first home buying was weaker in Victoria at 13.3%, and in South Australia with 10%.

The figures on fixed rates come as the major banks announced significant cuts to three-year and five-year fixed mortgages.

AFG points to lower property prices, competitive financing options and lack of consumer confidence as catalysts for falling fixed rate price.

Non major lenders made up 29.3% of financiers in September, up from 22.2% in August. AFG says the market share of the four major banks and their associated brands is now 80.1%, with many new home buyers and even investors opting for non-major lenders.

But despite the rush to fixed mortgages, which appears more attractive as the official cash rate prepares for its twelfth month set at 4.75%, some experts believe it’s too soon to move.

Metropole Properties director Michael Yardney says: “It’s probably a little bit too soon.

“Most people who have bet on fixed rate loans in the past have seen it hasn’t worked and many are suggesting that current rates are going to drop in the next 12 months or so because the Reserve Bank will want to stimulate our economy.

“It’s likely that although rates have dropped some in the short term, they may drop more.”

Yardney says that although some home owners may be better off waiting for fixed rate mortgages to fall even further there are still benefits to locking in an interest rate now.

“The reason you want to secure your rates is to take control of your outgoing cash and at the moment it’s mainly home owners doing that.

“Investors have trouble if they lock in a fixed rate, as it comes with other restrictions and is often interest only, so if you want to put in a fixed rate you need to make sure you still have flexibility.”

Yardney says based on current market conditions buyers might consider holding off until five-year rates drop below 6%.

“Then you’ll be well below the 10-year average for rates,” he says.

“There are pros and cons but as long as you can manage it and it helps you then that’s the best choice.”