‘Gobsmacking’ 2.99pc home loan
A community-owned bank has announced a "gobsmacking" one-year fixed home loan rate of 2.99 per cent ahead of the Reserve Bank's widely expected rate cut next week.
Newcastle-based Greater Bank will reduce its Ultimate Home Loan and Great Rate Home Loan by 50 basis points to 2.99 per cent from Monday, June 3, making it the lowest rate on the market at a nearly unheard of sub-3 per cent.
Greater Bank said the rate would be available to new home loan customers or existing home loan customers wishing to refinance to a fixed-term product.
"It's gobsmacking, to be honest," said Canstar finance expert Steve Mickenbecker. "I think this is the first time I've seen this in 35 years in finance. It's amazing. Everyone's expecting the RBA to move a couple of times at least so it's sort of in anticipation."
Mr Mickenbecker said he had seen a 3.05 per cent fixed rate prior to the RBA's August 2016 rate cut "but it was sort of there for a while then disappeared again".
"It's a fixed-rate loan so it's not flowing through to the rest of the Greater Bank portfolio, but I think it's a really momentous occasion," he said.
The move by Greater Bank, which has around 250,000 customers across NSW and southeast Queensland, comes after a "frenzy" of cuts to fixed rates by major lenders over the past week including Bank of Queensland, ING and NAB.
Economists are virtually unanimous that the RBA will cut the official cash rate at least twice more this year to a new record low of 1 per cent amid weak GDP growth, rising unemployment and falling house prices.
Mr Mickenbecker noted that fixed rates were not as closely linked to the RBA's cash rate as variable and more closely follow overseas funding costs. "They're more tied to the term, if it's a three-year term they'll tie it to three-year money," he said.
Finder insights manager Graham Cooke said it was "game-changing". "This is brand-new territory for lending in Australia - a sub-3 per cent home loan rate is the new benchmark," he said.
"It's a far cry from the 17 per cent standard variable rate we saw in 1989 and 1990. The move will trigger a race to the bottom as other lenders follow suit and drop their variable and fixed rates below 3 per cent."
Mr Cooke said even if banks don't follow the move directly, economists were predicting two to three cash rate cuts before the end of the year which should stir cheaper borrowing conditions.
"This puts existing and new borrowers alike in a really exciting position as there are thousands to be made in savings," he said. "It's crunch time to weigh up your options. With cuts forthcoming, many will be considering whether it's a good time to fix."
Some first homebuyers may prefer a fixed-rate option to allow them to "get into the swing" of paying a new mortgage, Mr Cooke said, while others may prefer to wait a few months to see where the cash rate goes.
It was only eight months ago rates began creeping upwards due to rising overseas funding costs. Mr Mickenbecker said that trend had "totally reversed" with the Bank Bill Swap Rate now below where it started.
Combined with expected cuts to the RBA cash rate, it is an "amazing time for borrowers". "The RBA will move sooner or later, it would be hard for the banks to justify not passing on the full cut given wholesale funding costs have come down," he said.
With some economists even floating as many as four rate cuts to 0.5 per cent, Mr Mickenbecker said rates could "go really low but there is sort of a natural floor".
"You get to the point where to cover your overheads and things you've got to earn some margin," he said. "I don't know where the floor is. I don't believe you could get a rate below 2 per cent. If you'd said to me 18 months ago we would get a rate below 3 per cent I would have said, 'Oh, come on.'"
Greater Bank chief executive Scott Morgan was not immediately available for comment but said in a media release on Friday that "as a customer-owned bank, we don't have shareholders which allows us to redirect funds to directly benefit our customers".
"This is why we are in a position to offer the most affordable one-year fixed rate home loan in the market," Mr Morgan said. "This will ensure we remain very competitive against the industry's major players in this fixed loan market."
He added, "These are the lowest fixed term rates I have seen in my time in the banking sector and the perfect opportunity for new and existing customers to look at their current financial position and considering fixing their home loan."