Intro rate punters challenge market makers

There's increasing evidence that home loans customers believe the interest rate cycle has peaked, with demand for introductory mortgages (at discounted rates) more than 50 per cent higher in May and June than in April, and more than double the preceding twelve months, or so the monthly sale data provided by Australian Finance Group shows.

Loans at introductory rates accounted for six per cent or less of total sales up to and including the twelve months to March 2008 at AFG, the last month the Reserve Bank increased the official cash rate.

In May and June sales of this style of loan increased to 13 per cent. In April they accounted for 10 per cent of sales.

Conversely, fixed mortgage volumes in June have more than halved at AFG since March, to below twelve per cent.

Borrowers may have it right, with the June monetary policy statement from Reserve Bank governor Glenn Stevens stating: "As a result of earlier decisions by the Board, additional rises in market interest rates, and tougher credit standards for some borrowers, there has been a substantial tightening in financial conditions since the middle of last year.

"The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs, is working to restrain demand."

Financial markets are taking a different view to the introductory borrowers.

The 90-day bank bill futures for September have an indicative yield of around 7.9 per cent, with the December contract trading around eight per cent.

AFG is Australia's largest mortgage broker, writing around one in ten mortgages, with a current mortgage book exceeding $50 billion.