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To fix or not to fix?

By Luke O'Kelly

Whether you’re refinancing or looking to buy it’s more important than ever to find a loan structure that best suits your personal circumstances and at the most competitive interest rate available to you. The rising rate environment, combined with sensational media headlines, can seem overwhelming, but with the right advice it doesn’t have to be.

According to Loan Market data, the number of loans being lodged across Australia has remained stable over the last few months. But what we’ve seen is a swing towards variable loans along with a higher proportion of refinancing. More than half of all the loans lodged have been driven by people refinancing their current home loans and 85 per cent of those loans have been variable.

This month the Reserve Bank of Australia (RBA) initiated another 0.5 per cent rate rise, taking the cash rate to 2.35 per cent. The major lenders have passed this increase on in full. The majority of the fixed-term home loan rates offered by the major banks start with a ‘5’, but we’re seeing some very competitive variable rates on the market sitting closer to 3 per cent.

Loan Market is home to one of the largest lending panels in Australia, working with 64 banks and lenders. Over the page we’ve outlined the top five most competitive variable rates on offer as at 5 August, looking at both major and non-major lenders. We’ve compared two owner- occupier loan values, $615,000 and $1 million, with a 20 per cent deposit and 30-year term. It’s important to remember that by working with your broker, not only can they further negotiate rates on your behalf, but they can access lenders you would otherwise not be able to.

Across the Loan Market network we saw a slight decline in the average loan size over the May to June period, but in July we saw an uplift with the average loan size around Australia sitting at:

New South Wales – $737,000
Victoria/Tasmania – $595,000
Queensland – $547,000
Western Australia – $468,000
SA/NT – $438,000

The average loan-to-value ratio (LVR) has also remained steady. Loan Market data reveals that 2021/22, the average LVR sat at bove 71 per cent, while the last two months reflected an average LVR of just over 69 per cent. Generally speaking, when property prices fall, so do loan amounts and so the LVR is likely to remain fairly consistent on new purchases. Where this trend may differ is on refinancing, the LVR could rise if the value of the property has fallen.

According to the RBA’s Deputy Governor, Michele Bullock, the rising house prices over the last few years have benefited homeowners, who have accumulated sizeable equity in their homes. This upward price trend, combined with tighter lending criteria, has meant the proportion of loan balances in negative equity has declined significantly. *ABS, RBA and Corelogic data show the share of pre-pandemic loans with negative equity sat at 2.25 per cent but as of May 2022 this figure sits at a nominal 0.1 per cent.

For those in an existing loan, now’s the time to talk to your broker to ensure you’re on the most competitive interest rate available to you. For those looking to purchase, make sure you’re buyer ready with your pre-approval up to date and in line with interest rate changes.

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