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Variable interest rate home loans were the product of choice for almost 80 per cent of borrowers in May, according to new data from Mortgage Choice.
As per the data, the biggest increase in variable rate loan demand was recorded in South Australia, where demand for variable rate products grew 12 per cent to 85 per cent.
New South Wales was not far behind, with more than 75 per cent of borrowers taking up a variable rate home loan.
According to Mortgage Choice’s spokesperson Belinda Williamson, the increase in variable rate demand can be attributed to the 50 basis point rate cut by the reserve Bank in May.
"The Reserve Bank's decision in May to cut the cash rate by 50 basis points, combined with speculation around further rate cuts, is likely to have fuelled borrowers' appetites for variable rate home loans. Price-sensitive borrowers may have found comfort in lenders' decision to pass on majority of the rate cut savings to variable rate borrowers,” she said.
The RBA cut the official cash rate by a further 25 basis points yesterday.
"Out of all the variable rate home loan types, basic variable rates - which tend to be more affordable but less flexible with fewer features at the borrower's disposal - were the only loan product to gain in popularity over the month, with demand rising to 17 per cent in May from 14 per cent in April," he continued.
"The increased interest in basic variable rate loans, which is now at a nine-month high, could signal a return to the market by first home buyers, as these loans tend to be more popular with lower income and less experienced borrowers who are still finding their feet in home loan market."
According to Ms Williamson, Victorian borrowers were the only group to record a fall in variable rate demand and a rise in fixed rate popularity.
“This more conservative approach by a growing number of borrowers may again be linked to an increase in price-sensitive first homebuyers entering the market now to beat the removal from 1 July of the state's First Home Owner Bonus and Regional Bonus, and wanting the security of a fixed repayment level,” she said.
Fixed rate loan demand fell nationally to 21 per cent from 22 per cent – despite a number of lenders dropping their fixed rate pricing below six per cent.
AFG, Australia's largest mortgage broker, reported 19.7 per cent of loans processed in May were for fixed rate products, down from 21 per cent in April and a high of 25.4 per cent in March.
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