Mortgage interest rates could fall below two per cent as cheap deals spark competition
Australian borrowers could soon be enjoying interest rates that start below two per cent as competition intensifies in the home loan market.
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Home loans could drop below two per cent for the first time in Australia.
Experts say mortgages are heading for “uncharted territory” with fixed rates already on the way down.
There’s now a “real possibility” variable rates would have ‘1’ in front – something that’s never happened before.
Finsure managing director John Kolenda, who manages companies including 1300HomeLoan, said borrowers should brace themselves for cheaper deals.
“There is a real possibility rates could come in under two per cent depending on what’s required to get the economy back on track,” he said.
“These are unprecedented times and I would have never have thought this would ever arise.”
According to financial comparison site RateCity’s database for owner occupiers paying principal and interest the cheapest three-year fixed rates are just 2.14 per cent, while the lowest variable rates are 2.39 per cent.
The cheapest offers on the market are two-year fixed rate deals at just 2.09 per cent by HSBC and ING.
There has been speculation Australia’s cash rate which sits at 0.25 per cent could fall into negative territory, which would deliver even cheaper deals for borrowers.
However Australian lenders have remained extremely cautious during the pandemic and are hand-picking who they dish out loans to in order to ensure they can comfortably meet their repayments.
RBA governor Philip Lowe last week said the national economy was “experiencing the biggest economic contraction since the 1930s”.
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And Treasurer Josh Frydenberg confirmed the country was now in a recession, after announcing a fall to Gross Domestic Product (GDP) in the March quarter by 0.3 per cent.
RateCity’s spokeswoman Sally Tindall said competition in the mortgage market was “intense” and even cheaper deals are on the horizon.
“I wouldn’t rule out one or two lenders taking the plunge and dropping at least one of their rates below 2 per cent,” she said.
“A home loan rate that starts with a ‘1’ is a great marketing proposition.”
She said the smaller lenders were likely to be the ones who would drop rates below two per cent in a desperate attempt to lure in new business and away from the bigger banks.
But HSBC chief economist Paul Bloxham said it’s unlikely the cash rate would fall much further.
“The RBA has made it quite clear they don’t like the idea of delivering negative rates,” he said.
“They don’t think that doing more here would be particularly helpful.”
CHEAPEST VARIABLE RATES
Tic Toc, Live-In Variable Loan, 2.39 per cent.
Homestar Finance, Star Essentials Home Loan, 2.39 per cent.
Reduce Home Loans, Rate Slasher Variable Home Loan, 2.39 per cent.
CHEAPEST THREE — YEAR FIXED RATES
ING, Orange Advantage Home Loan, 2.14 per cent.
HSBC, Premier Fixed Rate Home Loan, 2.19 per cent.
Reduce Home Loans, Home Owners Dream, 2.19 per cent.
* Source: RateCity. Based on $300,000 principal and interest loan with a 80 per cent loan-to-value ratio.
Originally published as Mortgage interest rates could fall below two per cent as cheap deals spark competition