Demand for fixed rate loans is on the rise now that Reserve Bank governor Glenn Stevens has flagged that rates will rise sooner rather than later.

Fixed rate loans accounted for 8.0% of the total loans in June, up from 6.2% in May.

More borrowers have locked in interest rates amid speculation that the official cash rate already has bottomed.There are also widespread concerns that local banks will continue to raise their mortgage rates independent of whether the Reserve Bank raises cash rates.

Meanwhile, investment bank JP Morgan says home loan demand will ease in the second half of 2009.
“This should help ease the RBA’s concerns,” says economist Helen Kevans. “RBA Governor Glenn Stevens recently highlighted the threat of excesses forming in the housing market, suggesting that higher housing demand simply may push up prices, rather than help create new dwellings.

Kevans believes “inflated house prices eventually correct” themselves and “the wealth destruction that would occur in the highly leveraged household sector will be painful”.

Not all economists share Ms Kevans’ view, with Australian Property Monitors economist Matthew Bell saying there is no house price bubble and a lack of supply of new dwellings will support prices.

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