New record low fixed mortgage rate hits market, amid record property prices and high rates of refinancing.

Newcastle-based mutual lender Greater Bank is offering fixed one and two-year mortgages at a record low of 1.59 per cent.

A new record low fixed rate mortgage has hit the market as lenders compete for home buyers, amid record property prices and high rates of refinancing.

Newcastle-based mutual Greater Bank on Tuesday cut its one and two-year fixed mortgage rates for owner occupiers paying principal and interest to 1.59 per cent.

Greater Bank already had the lowest one-year fixed rate on the market at 1.69 per cent, and now also offers the lowest two-year fixed rate.

However, the offer is only available to customers with properties in NSW, Queensland and the ACT.

The move comes as lenders continue to battle to offer the most competitive short-term rates while longer-term fixed rates are on the rise.

Financial comparison site RateCity said nine lenders have cut their one and two-year fixed rates within the last month.

But over that same time frame, only three lenders cut their three to five-year fixed rates while 18 have lifted them.

RateCity research director Sally Tindall said lenders were pricing their loans in line with the Reserve Bank of Australia’s signalling on interest rates.

RBA governor Philip Lowe has maintained his stance that the record low cash rate of 0.1 per cent won’t be increased until 2024.

“Greater Bank has thrown down the gauntlet to its competitors, dropping to a new record low,” Ms Tindall said.

“Governor Lowe’s insistence the cash rate will not rise until at least 2024 has given lenders the assurance they need to keep their short-term fixed rates ultra-competitive.

“Last month St George and Bank of Melbourne put pressure on the low-cost lenders by cutting their 2-year fixed rates down to just 1.79 per cent, previously the lowest rate in this category,” she said.

Canstar’s financial services executive Steve Mickenbecker said even interest only mortgages were being caught up in the rate-cutting frenzy, with Greater Bank’s one and two year fixed interest only rate falling to 1.69 per cent.

“Even interest-only borrowers, at 1.69 per cent, are sharing in the spoils of rock-bottom interest rates,” he said.

“We are starting to see an unwinding of the premiums charged to interest only borrowers that started four and a half years ago when APRA placed caps on this higher risk form of lending.”

Mr Mickenbecker said short-term borrowers would likely be able to resecure a low rate when their loan term ends in one or two years.

“Locking repayments in for one or two years now looks like a low risk option, and should allow borrowers another bite of the fixed rate cherry when their terms expire in 2022 or 2023, comfortably inside the Reserve Bank’s timetable,” he said.