Interest rates slashed in hot home loans market

Borrowers are saving thousands as competing lenders cut home loan rates, but the outlook for deposit rates is grim.

While the RBA’s official cash rate has been on hold, lenders’ home loan rates have been tumbling. Picture: iStock

Competition in the home loan market has sent rates tumbling over the past month, with at least 19 lenders slashing rates on variable home loans.

An average borrower taking out a $400,000 home loan at the lowest two-year fixed rate today, compared to a year ago, would pay $7,344 less in interest over the two-year fixed period, according to recent analysis by RateCity.

“It’s been a record-busting month for mortgages as lenders leapfrog each other in a bid to offer the lowest-rate home loans,” said RateCity research director Sally Tindall.

“With refinancing on the rise, lenders have to keep whittling down their rates if they want to be in contention for these borrowers.

“The cash rate has been on hold since the March 19 emergency rate cut, but despite this, rates keep tumbling.”

Ms Tindall’s comments came ahead the Reserve Bank’s decision on Tuesday afternoon to keep the cash rate n hold at record low 0.25 per cent, as expected.

Nineteen lenders in the Australian market have cut at least one variable home loan rate in the last month, and 22 lenders have cut at least one fixed home loan rate, RateCity data shows.

The lowest variable home loan on the market is now 2.17 per cent, which is offered to new Freedom Lend customers. It’s 0.72 per cent lower than the best rate offered a year ago.

The lowest two-year fixed loan on the market is now 2.06 per cent, offered to new Homestar Finance customers, which is 0.93 per cent lower than the best rate on the market a year ago.

Savers have also been hit by tumbling interest rates, with 33 banks cutting at least one savings rate and 78 banks cutting at least one term deposit rate.

Locking up $25,000 in a 12-month term deposit at the highest rate on the market would see customers $235 worse off today compared to a year ago.

“Competition in savings rates is near non-existent at the moment, particularly among the bigger banks who have seen their deposit books increase during COVID-19,” Ms Tindall said.

“We’re unlikely to see any real turnaround in savings rates for months, or more likely years to come.”