Fixed-rate mortgages back in demand

By Peter Martin, www.smh.com.au, 11 August 2009

THE fixed-rate mortgage, as good as dead six months ago, is roaring back to life as home owners scramble to take advantage of low interest rates before they disappear.

But many will have missed the boat. The Commonwealth Bank joined Westpac yesterday in pushing up its fixed rates by as much as 0.60 percentage points.

As recently as last December, when variable rates were plummeting, fixed-rate mortgages were all but unsellable.

Official figures released yesterday show that the proportion of new mortgages fixed for two years or more slid to 1.9 per cent, the lowest in the two decades since fixed-rate mortgages were introduced to Australia.

But as the Reserve Bank slowed down its rate cuts in the new year, the proportion began to rebound, passing 4 per cent in April, 6 per cent in May and 8 per cent in June. In that month, 5452 new mortgages were fixed, the most for a year, and five times as many as in December.

The JP Morgan economist Helen Kevans believes the boom (in fixing rates) has further to run.

''On top of speculation that the official cash rate already has bottomed, there's widespread concern that the banks themselves will continue to raise their variable rates independent of the Reserve,'' Ms Kevans said.

''With most economists, including us, expecting the next move in the official rate to be up, more and more borrowers will lock in their loans.''