Why home loan rates will not go much lower

LENDERS are continuing to drop their home loan interest rates — without any prodding from the RBA — but this is why they are unlikely to go much lower.

LENDERS are continuing to drop their home loan interest rates — without any prodding from the RBA — but they are unlikely to go much lower.

New analysis from financial comparison website RateCity shows intense competition in the housing sector has spurred the lowest rate deals in living memory.

Experts are forecasting the RBA to keep the cash rate on hold at two per cent for the remaining half of 2015, which could prompt borrowers to lock in their home loan deals now before rates slowly creep up.

St George Bank’s senior economist Hans Kunnen believes fixed rates deals are “close to as low as they go.”

“These are historically low rates, you may get a slightly better rate but in the picture of a 10-year commitment these are pretty darn good,’’ he said.

“You shouldn’t beat yourself up today if rates go down by say another five basis points.”

Mr Kunnen said fixed rates could still fall because they were not determined by the cash rate, but instead by wholesale rates in the international markets.

The lowest variable rate deals on the market have fallen below four per cent, while one-year fixed rates offering are as low as 3.49 per cent.

Data from one of the nation’s largest mortgage broking firms Australian Finance Group showed in June of new borrowers 14.2 per cent fixed their home loan, compared to 15.2 per cent in May.

RateCity spokesman Peter Arnold said short-term fixed rates deals “keep getting trimmed” — not just among credit unions and smaller lenders, but also the big banks — as competition remains fierce in the home loan market.

“On average the longer term rates have been flat for quite a while, the average rate for four and five year terms has been hovering around 4.9 per cent,’’ he said.

“But the one, two, three-year fixed rates have crept lower.

“Rates could go lower but we know we are somewhere near the bottom of the cycle and you can’t be certain rates can’t go any lower.”

Originally published as Why home loan rates will not go much lower