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Investors turn away from fixed rate loans

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Investors and borrowers turned away from fixed rate home loans for the first time in eight months, according to Australia’s largest independent mortgage broker.

In January fixed rate loans approvals figures saw a drop of three per cent to 21 per cent from December 2011 statistics, found Mortgage Choice.

Mortgage Choice spokesperson Belinda Williamson explained that borrowers taking new loans last month were less concerned with locking in their interest rate than those in late 2011.

This is the first recorded drop since May 2011.

"Interest rate cuts and generous discounting on variable rate loans could be the key drivers behind borrowers giving fixed rate loans the cold shoulder. The margin between fixed and variable has narrowed, with most variable rates now sitting only slightly higher than fixed rates,” Ms Williamson said.

If the Reserve Bank cuts the cash rate on Tuesday and lenders pass on some savings, then some variable rates could fall lower, she said.

"If this occurs, next month's loan approval data may show a bigger shift towards variable rate loans.”

Demand for variable rate loans rose by two per cent from December to January, to 79 per cent, however this is below the 12-month average of 85 per cent.

"Of all the variable rate loans, ongoing discount rates - where the interest rate is discounted over the entire loan term - maintained their popularity. Demand for this loan type reached an all time high at 46% of approvals, up from 41% in December and above the 12-month average of 37%."

Demand for basic variable loans fell to 14 per cent of all approvals last month, a drop of 1 per cent from December. Similarly, demand for standard variable loans also dropped by 1 per cent, from 16 per cent to 15 per cent.

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