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Australian investor mortgage rates hit record low of 2.18%

Alison Cheung avatar
Alison Cheung
- 5 min read
Australian investor mortgage rates hit record low of 2.18%

Non-bank lender Homestar Finance has introduced a record-breaking 2.18 per cent mortgage rate for property investors, as the lowest investor rate in Australia nudges closer to 2 per cent. 

The 2.18 per cent investor rate is fixed for one year, with a comparison rate of 2.58 per cent.

The new rate is 31 basis points lower than the lowest fixed investment rate from a big four bank of 2.49 per cent, coming from Westpac, NAB and ANZ.

Homestar’s rate is also 1.40 per cent lower than the Reserve Bank of Australia’s (RBA) average existing customer rate of 3.58 per cent.

Aside from the lowest fixed investor rate, Homestar also shares the title of lowest variable investor rate with Westpac, both offering variable options at 2.49 per cent.

Loans.com.au has a 1.99 per cent investor rate, but investors must also bundle their owner-occupier loan with the online lender. 

How much investors could save by refinancing

Investment property owners refinancing to the lowest investor rate could stand to pocket back nearly $3,000 in the first year, a RateCity analysis found.

If an investor mortgage holder on the RBA’s average existing customer rate of 3.58 per cent switched to a Homestar’s 2.18 per cent rate, they could potentially save $289 a month. Over the longer term, the potential savings after fees might look like this:

  • $2,723 in the first year
  • $4,701 in the first two years
  • $12,871 in the first five years
  • $85,958 over the life of the loan.

The calculations assume a borrower is five years into a 30-year, $400,000 home loan and is paying principal and interest.

Investor rates drop along with owner-occupier rates

Property investors have been putting the brakes on borrowing. New investor loans declined by 29 per cent, or $1.8 billion, in the two years to June 2020, Australian Bureau of Statistics (ABS) data indicated.  

Lenders have taken action, with competition cranking up. In the past two months, 39 lenders trimmed their investor rates, including Commonwealth Bank, which cut their investor rates by up to 15 basis points today.

Westpac rolled out an introductory investment variable rate of 2.49 per cent for new customers last week, with the rate being the lowest for investors among the big four banks. 

Investors can potentially snag a rate below 2.5 per cent from 33 lenders, while 98 lenders have rates below 3 per cent.

Sally Tindall, research director at RateCity, said smaller lenders need to be more competitive to stand a chance against major banks.

“Low cost lenders can’t outdo the big four banks when it comes to marketing, so undercutting their rates is essential to attracting customers,” she said, adding that it was likely that some lenders may cut their new customer rates further.

There are growing predictions that the RBA may lower the official cash rate by 15 basis points to 0.10 per cent as soon as October. 

The next RBA meeting falls on October 6, the same day that Treasurer Josh Frydenberg will hand down the federal budget, in which further lifts to spending are expected. 

Investors may struggle as rental market weakens

The falling investor rates may help cushion the impacts of a struggling rental market. National rent values edged lower by 0.8 per cent between April and August, CoreLogic data showed. 

The firm’s head of Australian research Eliza Owen said Sydney and Melbourne were seeing more acute falls of 4.2 per cent and 4.4 per cent respectively in the same period.

Inner-city landlords may need to prepare for several years of “subdued” rental growth, the RBA said, largely due to fewer international students and migrants. 

It comes as some states, including NSW and Victoria, move to extend their moratoriums on tenant evictions, which bans landlords from kicking out tenants who have been financially affected by COVID-19. 

A quarter, or 826,000, of investors are experiencing mortgage stress amid tumbling rents, compared with some 40 per cent of owner-occupiers feeling the pinch, the latest research from Digital Finance Analytics found.

Lowest investor P&I rates on RateCity.com.au

LenderAdvertised rate
VariableHomestar Finance

2.49%

1-year fixedHomestar Finance

2.18%

2-year fixedPolice Credit Union

2.19%

3-year fixedHume Bank (Local post codes only)

1.99%

5-year fixedHSBC

2.69%

Source: RateCity.com.au. 
Note: Data accurate as of 25.09.2020.
Hume Bank rate is only available to new loans for renovation or construction of new properties within 150 km of Albury Post Office.

Lowest big four banks investor P&I rates

Basic variableVariable with offset2yr fixed3yr fixed5yr fixed
CBA

3.12%

4.43%

2.69%

2.69%

3.09%

Westpac

2.49%

3.74%

2.49%

2.49%

2.99%

NAB

3.09%

4.27%

2.49%

2.59%

3.09%

ANZ

3.12%

4.19%

2.49%

2.49%

2.99%

*LVR and loan amount restrictions apply. Assumed loan amount of $400k (affects NAB and ANZ offset rates), and LVR up to 70%.
*Westpac's Basic Variable rate is a 2-year introductory rate of 2.49% which then reverts to 3.09% at the end of the introductory term.

Source: RateCity.com.au. Data accurate as of 25.09.2020.

Disclaimer

This article is over two years old, last updated on September 25, 2020. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.

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Product database updated 25 Apr, 2024

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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