Rate Cut Expected by Borrowers

According to national loan approval data from Mortgage Choice, which is the largest mortgage broker in Australia, demand for variable rate home loans achieved an eleventh month high in July due to the rumors of another rate cut in the upcoming months.

Variable rate demand increased to 85 percent of all new home loan approvals for the month of July. This was the highest ever since August of the previous year, when it was 86 percent of all new home loan approvals.

The only state that reported a decrease in the variable rate demand was Western Australia, from 86 percent in June to 81 percent in July. In the meantime, the average increase of variable rate across the rest of the states was 3.75 percentage points.

According to company spokesperson Belinda Williamson, most of the borrowers feel positive about variable interest rate like they did in August 2011, when borrowers had encountered nine successive months of constant interest rates, which was followed by decrease in the rates.

In addition, Williamson said that the borrowers’ expectations of another rate cut in the approaching months may be strengthened by the low inflation figures in the previous month. Apparently, borrowers are focused on obtaining the lowest interest rate possible. In fact, the top two variable rate loan options in July are common for having low interest rates.

Demand for discount rate loans increased to 44 percent, while demand for basic variable rate loans increased to 20 percent. Moreover, demand for standard variable rate loans decreased in the previous month, from 19 percent to 18 percent. Similarly, demand for fixed rate loans significantly decreased from 18 percent to 15 percent.

In contrast, the only state that reported an increase in the fixed rate loan demand was Western Australia. This may be due to the effect of the mining boom on living costs and borrowers searching for ways to limit their expenses.

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