Can We Fix It?

Unsuccessful investors have an uncanny knack of buying high and selling low and cursing themselves for making wrong decisions when hindsight points to the bleeding obvious.

When it comes to lending, perhaps Australians need to follow the wise words of animation character, Bob the Builder, or more specifically his catch cry…Can we fix it? and Yes we can!

Residential lending in Australia is arguably not going to get any cheaper than it is now, with official cash rates at near 50 year lows, and the Reserve Bank maintaining its cash target rate at three per cent this week.

Three of the major four banks, Commonwealth Bank, National Australia Bank and Westpac Banking increased various fixed rate mortgage terms last month, with the popular three year fixed term increasing by between 20 and 44 points, depending on lender and product.

This is the leading indicator for borrowers to start fixing loans, with further support rates are unlikely to drop lower as many lenders only passed on 10 points of the 25 point Reserve Bank cut on April 8, to variable rate mortgages.

Home loan rates can realistically only fall so low, and even if we are not at the bottom of the cycle, over a historical mortgage interest rate timeline we are very close to it.

But borrowers are not heeding the fixed rate call, with new research showing less than one per cent of borrowers locked in their future mortgage commitments in 2009.

Only four respondents to a study, commissioned by InfoChoice and conducted by CoreData, have fixed their mortgage this year with 480 of the 647 home loan respondents sticking with the ongoing variable.

When considering the 110 respondents currently holding a fixed mortgage, over half fixed in either 2006 or 2007, a period in which there was five 25 point official interest rate hikes, which at the time seemed and was a clever investment strategy, to lock future payments and negate upward interest rate risk.

With very little chance of further mortgage rate decreases, borrowers should be jumping on the fixed rate bandwagon at the bottom of the cycle, and not trying to scramble on when rates begin to increase, which will invariably happen if history repeats itself.

The InfoChoice Consumer Survey was conducted in April 2009, with 1,090 respondents.

Interest rate changes supplied by; www.infochoice.com.au.