Competition in Australia’s home loan lending market is heating up, with a number of providers offering rates below 2 per cent.

Prospective home buyers are now able to seek out bargain basement loans with 9 lenders now offering variable and fixed interest rates as low as 1.9 per cent.

The low interest rate environment is being fuelled by the Reserve Bank of Australia’s decision to maintain the official interest rate at 0.25 per cent while the economy recoups from financial havoc wreaked by the coronavirus pandemic.

Low rates set by the RBA enable financial institutions to borrow money at a reduced cost, which supports cheaper loans to businesses and households.

The central bank has also implemented a term funding facility due to COVID-19, another mechanism to ensure the money market is provided with a cheap source of liquidity.

On Tuesday, the RBA decided to increase the funding facility by a further $110 billion.

RateCity research director Sally Tindall said the monetary policies implemented by the RBA would likely keep rates at record lows.

“The expanded term funding facility will also help keep rates at record lows for a number of years and could potentially prompt some banks to cut new customer rates even further,” she said.

“This week, Reduce Home Loans launched a new introductory home loan for owner-occupiers with a starting interest rate of just 1.90 per cent.”

The under 2 per cent club is entirely made up of smaller lenders including Easy Street, which is offering a variable rate of 1.95 per cent, and Homestar Finance, which is advertising a one-year fixed rate at 1.98 per cent.

However, Ms Tindall warned a number of these smaller lenders have very specific lending requirements, such as limits to borrowing amounts and location.

“Many of these sub-2 per cent details come with very specific terms and conditions,” she said.

“Whether it’s a honeymoon deal, a fixed rate or a cashback special, customers should read the fine print carefully and do the maths to make sure they end up ahead.”

Hume Bank, which is offering at 3-year fixed rate at 1.99 per cent, only allows a customer to borrow the money at the specified rate if the property is 150 kilometres from the Albury Post Office in regional New South Wales.

Other loans also revert to higher interest yields after a certain date or period.

“While a rate cut is on the cards, the RBA board is going to want to keep it in its hand until absolutely necessary,” Ms Tindall said.

“Any cut to the [official] cash rate down to 0.10 per cent is likely to happen in 2021.”

Australia’s big four banks are offering two-year fixed rates starting at 2.19 per cent and variables rates from 2.69 per cent.

Both Westpac and NAB are advertising variable rates at 2.69 per cent, while Commonwealth Bank is offering 2.79 per cent and ANZ’s is 2.72 per cent.



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