Australia’s top lenders have slashed variable interest rates, despite the Reserve Bank of Australia leaving them on hold at a historic low of 0.10%

To attract new customers in a booming property market, lenders have slashed variable interest rates.

The Reserve Bank this week kept the official cash rate (OCR) at a record low of 0.1%, which is where it has sat since last November. Despite interest rates remaining on hold, Reserve Bank Governor Phillip Lowe has wound back economic stimulus.

Instead of purchasing $5 billion worth of government bonds, it will now scale that back to $4 billion. Originally the stimulus package was expected to end in November but has now been extended to February in the wake of the Delta variant, which has slowed Australia’s economic recovery.

Reserve Bank Governor Lowe said: “This setback to the economic expansion is expected to be only temporary. The Delta outbreak is expected to delay but not derail the recovery.”

Whilst official interest rates remain on hold and are likely to until 2024, lenders are slashing their variable mortgage rates to attract new customers.

The number of variable rates on comparison website, RateCity has climbed from 28 to 46 in just a couple of months. They have also reported that three times more variable rates are sitting below 2%, than at the start of the year.

For a home loan of $500,000, with a deposit of 20%, the lowest rate is 1.84% at St George Bank and ING, whilst the highest is 4.24% at NAB.

Although variable rates are continuing to fall, lenders are increasing fixed interest rates. At the time of writing, RateCity did not show any fixed interest rates, however, Finder did.

The lowest fixed interest rate on Finder was 1.69% for two years. U Bank has the highest rate of 2.49%, however, the trade-off is that you’ll be able to lock in the deal for five years, with no ongoing bank fees. Their interest rate drops to 2.09% for three years and 1.79% for one year.

RateCity’s Research Director Sally Tindall said, “Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target.”

Now’s the time to lock in a low-interest rate because many economists and most financial traders expect interest rates to have a limited lifespan and increase before 2024.

Capital Economics Senior Analyst, Marcel Thieliant added, “We expect the bank to end its bond purchases in about one year and start to hike rates in early 2023 and lift them to 0.75% by end-2023.”

“That forecast is more optimistic than the analyst consensus which doesn’t foresee the first rate hike until the second half

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