Homestar drops home loan rate to 1.79pc as sector banks on RBA cut

An Australian lender has slashed its home loan rate to the lowest on record, indicating the lending market is preparing for a rate reduction by the Reserve Bank.

Australian Banking Association CEO Anna Bligh: ‘I think banks will do what they’ve done throughout the past 12 months, and that is pass on as much as they possibly can to their customers.’ Picture: AAP

An Australian lender has slashed its home loan rate to the lowest on record, indicating the lending market is preparing for a rate reduction by the Reserve Bank.

On the eve of the RBA’s touted cash rate cut, small lender Homestar Finance lowered its ongoing variable home loan rate to 1.79 per cent — the lowest on offer in Australia’s housing finance market.

Targeting new customers wanting to refinance, the rate is available to borrowers with a loan-to-value ratio of 60 per cent and for up to $850,000.

Refinancing calculations conducted by RateCity show a mortgage holder with an outstanding balance of $400,000 could save $25,287 over a five-year period if they switched to the newly advertised Homestar rate.

There are 11 lenders offering home loan rates under 2 per cent, while the lowest advertised variable rates at the big four banks are between 2.69 and 2.72 per cent.

Figures from the Australian Banking Association show 500,000 owner-occupier loans, or 8 per cent of all mortgages, have been refinanced in the past 12 months.

ABA chief executive Anna Bligh said if the central bank did decide to shave rates on Tuesday, lenders would try to pass on as much of the rate cut as possible.

“It’s a brave person that predicts anything on Melbourne Cup Day either on or off the track but if we do see that, I think banks will do what they’ve done throughout the past 12 months, and that is pass on as much as they possibly can to their customers,” Ms Bligh said.

“We need to remember that it’s not only borrowers who are customers, but also people who have savings and deposit accounts, and they’re getting very, very low rates.

“So banks will want to balance all of that out.”

Economists are predicting the RBA will cut the cash rate to 10 basis points and increase its bond-buying activity.

In March, the central bank cut the cash rate and implemented unconventional monetary policies in response to COVID-19, which included a bond-buying regime and a term-funding facility to provide cheaper liquidity to banks.

RateCity research director Sally Tindall said a rate cut was likely to double the rates advertised under 2 per cent, but most lenders were only offering cheaper loans to new customers.

“While the banks are outbidding each other to attract new customers, the real question is whether the banks will pass a cut onto their existing ones,” Ms Tindall said.