Most Australian?s have a variable rate home loan

Thought this was interesting, especially considering economists expect interest rates to rise in 2015.

Housing finance data reveals that in June 2014, 85.7% of new loans to owner occupiers were on a variable or ?floating? rate. Unlike some other countries, Australian?s overwhelmingly prefer to take out variable rate mortgages rather than fixed rate loans.

This is despite the fact that at times (such as right now) fixed rate loans can have a significantly lower mortgage rate.

The other factor to keep in mind is that the typical length of a fixed rate mortgage in Australia is quite short, typically being less than three years.

The fact that most Australian?s are on a variable rate is of great assistance to the Reserve Bank. Essentially, having a large proportion of households with variable mortgage rates means that when the Reserve Bank adjusts monetary policy it has an almost immediate impact on consumer attitudes and spending patterns.

When you consider that a mortgage is most people?s single largest liability changes to monetary policy have a virtually immediate impact on consumer behaviour.

(Taken from RPData Quarterly review.)
 
Fair comments all round.

Statistically people are usually financially better off going with variable. Any fixed rate in the last 2 years has gone sideways (at best) thus far. Of course, it's hard to imagine that you'd go wrong with the current 4.99% over 5 years currently available; but that sort of prediction has been wrong so many times in the past that only time will tell.

Fixing is a risk mitigation strategy. If you can't afford a rate rise, fixing will solve this problem even though you may not get the best financial outcome. What this trend demonstrates is that most Australians are in the financial position where they're not too concerned about needing a risk mitigation strategy. It suggests that most households are in the position where they feel the are comfortable with where they are and will continue to cope if rates do rise.
 
Only a very small % of my mortgage broking firms clients have fixed loans - I estimate about 5%. One major reason for not fixed is the flexibility to move banks without potentially large penalties.
 
Fixed rates are an issue if circumstances change and you need to or want to sell. There's still risk in fixing from the break costs and not just of rates dropping afer you have fixed.

I'd say that would be a significant reason people don't fix for long periods.

http://www.streetnews.com.au/average-length-of-home-ownership-rises/

Apparently the ownership duration is increasing, but only ~10 years atm. So by the time you find a suitable time to fix (could be years), then statistically you probably won't have a long window in which to fix, especially longer periods.

And you would probably find this varies a lot accross the distribution, e.g. People own their 1st home shorter than the average, their second home longer, etc..

We are being encouraged to be a more mobile workforce, things like fixing, stamp duty, etc. run contrary to this.
 
Only a very small % of my mortgage broking firms clients have fixed loans - I estimate about 5%. One major reason for not fixed is the flexibility to move banks without potentially large penalties.

I find the banking system in Australia to be less competitive for consumers when compared to the UK.

The example from Terry is classic point. I don't know if is still the case over there but it used to be that to gain your business, a bank would pay the penalties for switching to their mortgage (yes I know this was built into the cost).

Another big one for me is ATM fees, which were all but abolished between big banks in the UK around 1999-2000, but Australian banks still earn $1.5m per day (according to ING Direct) charging to take money out of a rival banks account that would in truth not cost anything.

On a side note, I have also noticed the banks here are now trying to sell credit insurance, (three phone calls in last month alone), which was big practise in the UK in the 1990's & 2000's, but is now costing those banks a pretty penny as they are having to refund those mis-sold policies.
 
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