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RBA to hold: have home loan rates hit the bottom?

RBA to hold: have home loan rates hit the bottom?

The Reserve Bank is expected to keep the cash rate on hold at 0.25 per cent when it meets today, but the rate cuts keep coming from the banks for new home loan customers.

RateCity's database shows that 507 new customer rates changed in the month of May – the vast majority of which were cuts (75%).

This includes international bank, HSBC which yesterday cut its 2-year fixed rate to 2.09 per cent – the lowest fixed rate on the market, equal with ING.

Although the cash rate is at a record low, these recent cuts indicate home loan rates might not have bottomed out just yet.

Variable rate changes in May on the RateCity database:

  • 115 variable rates were cut (95% of all variable changes).
  • 6 variable rates increased (5% of all variable changes).
  • The lowest variable rate of 2.29% is now being offered by 2 lenders; Reduce and Homestar.
Variable ratesNumber of home loan rate changes% of variable rate changes
Rate cuts11595%
Rate hikes65%

See notes below.

Fixed rate changes in May on the RateCity.com.au database:

  • 265 fixed home loan rates were cut (69% of all fixed rate changes).
  • The lowest fixed rate of 2.09% is now being offered by 2 lenders: ING, HSBC.
  • 121 fixed home loan rates increased (31% of all fixed rate changes), the majority of which were for 2- and 3-year loans.
Fixed rates1-yr2-yr3-yr4-yr5-yrTotal no. of fixed rate cuts% share of fixed rate changes
Rate cuts7270

77

9

37

265

69%

Rate hikes1537

61

1

7

121

31%

See notes below.

RateCity research director Sally Tindall said while the cash rate was unlikely to move in the foreseeable future, some home loan rates could drop further as the banks battle it out for new business.

“The big four banks have probably exhausted their capacity to cut fixed rates. Now what we’re seeing is challenger banks trying to outbid them to attract new customers,” she said.

“As a result, rates could fall a fraction further, but they’re unlikely to fall far.

“While the majority of new customer rate changes over the past month were cuts, three-year fixed rates have been the exception, with almost the same number of hikes as cuts.

“In March and April, we saw a handful of non-bank lenders put record low three-year fixed rates on the table but it was clearly unsustainable. Since then, they’ve had to hike rates, which could be a sign we’ve hit the bottom in this category,” she said.

Customer interest in fixed rates has increased significantly over the last couple of months with CBA reporting fixing has more than doubled for new and existing customers since the beginning of March.

“The big four banks are offering fixed rates that are, in some cases, over half a percent lower than their lowest variable rates, so it’s no surprise people are gravitate towards fixing,” she said.

“But fixing isn’t for everyone. People need think carefully before they fix because it does come with its own unique set of rules.

“Fixed rate loans typically have caps on extra repayments, limited or no access to an offset account and break fees if they want to get out early,” she said.

Lowest variable rates on RateCity.com.au

LenderAdvertised rate
Reduce Home Loans

2.29%

Homestar Finance

2.29%

Tic Toc

2.39%

See notes below.

Lowest 2-year fixed on RateCity.com.au

LenderAdvertised rate
ING

2.09%

HSBC

2.09%

Newcastle Permanent

2.18%

See notes below.

Lowest 3-year fixed on RateCity.com.au

LenderAdvertised rate
ING

2.14%

Macquarie Bank

2.19%

St George/Westpac

2.19%

See notes below.

Lowest 5-year fixed rates on RateCity.com.au

LenderAdvertised rate
RACQ Bank

2.49%

ING

2.54%

UBank

2.59%

See notes below.

Big four bank lowest rates

LenderAdvertised variableAdvertised

2-yr fixed

Advertised

3-yr fixed

CBA

2.79%

2.29%

2.29%

Westpac

2.93%

2.19%

2.19%

NAB

2.84%

2.29%

2.29%

ANZ

2.72%

2.29%

2.29%

See notes below.

  • Notes: the first two tables show the number of home loans that have had a rate change since 1 May 2020. The data is based on new customer rates for owner occupier and investor home loans in the RateCity.com.au database. The data includes variations in relation to principal and interest, interest-only, fixed rate terms, loan to value ratios (LVR) and loan size.

    The rates listed above are for owner occupiers paying principal and interest. Homestar finance loan requires an LVR of 60% or less in metro areas only. Reduce Home Loans and Westpac’s lowest rates are for borrowers with a LVR of 70% or less.

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This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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