Fixed mortgage rate under 2% available for first time

A small Tasmanian lender has become the first to take fixed-rate mortgages under 2 per cent.

Australians will be able to get a fixed-rate mortgage starting with a ‘1’ for the first time. Picture: iStock

Competition in the home loans sector continues to heat up, with Bank of Us becoming the first financial institution in Australia to offer a fixed-rate home loan below 2 per cent.

On Monday the Tasmanian mutual dropped its “Flexi Discount” home loan rate to 1.99 per cent for one to three years for owner-occupiers in the state, paying principal and interest, who had a deposit of 10 per cent or more.

The comparison rates for the one, two and three year terms are 2.78, 2.71 and 2.64 per cent respectively.

The record low rate comes three months after the RBA cut the cash rate to 0.25 per cent and implemented a quantitative easing policy in response to the coronavirus pandemic, lowering costs in the wholesale debt market.

The RBA has also noted that many Australians were looking to refinance mortgages at a lower rate as incomes are squeezed by the economic consequences of the pandemic.

The big four have begun to move on rates as competition in the market heats up. Earlier this month NAB shaved 15 basis points off its base variable rate to 2.69 per cent.

Research director at Rate City Sally Tindall said the new sub-2 per cent rate “was the start of a new era for home loans in Australia.

‘This is game on for homeowners looking to fix’

“From tomorrow, the average Australian who lives in their own home can apply for a mortgage rate that starts with a one,” she said.

“This is game on for homeowners looking to fix. We expect more low-cost lenders to follow suit with rates under 2 per cent.

“At this stage, the big four banks are unlikely to chase them down, but if they start losing customers to the smaller lenders, they might be forced to cut fixed rates again.

“Even a year ago, nobody expected rates would fall this low. But these are extraordinary times and lenders are responding with extraordinary rates.”

The lowest variable rate on the market according to Rate City is online lender Freedom Lend’s 2.17 per cent offerings for customers with a 30 per cent deposit on loans of more than $1 million.