A lot of Australians want to switch to fixed rate mortgages because they're worried about rate rises

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Australians are expecting home loans rates to rise and almost one in five are considering switching to fixed rate loans, according to a survey.

The survey, conducted by Ipsos for Gateway Credit Union found 38% of those who wanted to switch said they would turn to fixed rates in the next three to six months and a further 24% indicated they would follow in the next six to nine months.

Australian banks have started to increase home loans rates from a more than five decade low to cope up with increased regulatory capital requirements and curbs to control speculative lending.

The major banks, which have an 80% market share in the mortgage market, are also bracing for further capital requirements and a government levy that can erode as much 6% of their annual earnings.

“Mortgage holders who are concerned about covering their repayments if rates were to rise should be thinking about locking in a fixed rate sooner rather than later to take full advantage of the historically low rates,” Gateway CEO Paul Thomas said.

Australian household debt has hit a record and the RBA, in its semi-annual financial stability review in April, noted about a third of mortgage holders have either no buffer or the capacity to meet less than one month’s repayments.

The last time there was a marked spike in fixed rate loans was in 2013, as this chart shows, when banks lured customers by dropping rates to unprecedented levels and analysts urged customers to lock in rates given the possibility of an increase in global interest rates.

Only 13.6% of owner-occupiers had a fixed rate mortgage by March, compared with 20.4% in April 2013, according to government statistics.

Now again, the sceptre of global monetary tightening looms with the US Federal Reserve raising rates twice more this year. That could also increase the cost of funding for Australian banks relying on bond markets to bridge a funding gap.

“The fact that mortgage holders are looking to switch their home loans to fixed rate products over the next 3 – 9 months just goes to show that there is a sentiment of concern, Thomas said.

Factors such as out-of-cycle rate hikes, the new bank levy, stagnant wage growth and high levels of household debt are all converging to create an environment where borrowers are looking to exercise caution, Gateway said.

Ipsos polled 1,039 respondents across Australia in May, Gateway said.

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