An Australian lender has slashed its home loan rate to the lowest on record, flagging signs the lending market is readying itself for the Reserve Bank's potential November interest rate cut.

On the eve of the RBA's touted cash rate carving, small lender Homestar Finance has lowered its ongoing variable home loan rate to 1.79 per cent - the lowest rate on offer within Australia's housing finance market.

Attempting to target new customers wishing to refinance, the rate is attainable to borrowers with a loan-to-value ratio of 60 per cent and for amounts of up to $850,000.

Refinancing calculations conducted by RateCity show a mortgage holder with an outstanding balance of $400,000 could save $25,287 over a five-year period if they switched to the newly advertised Homestar rate.

The RBA is expected to lower the interest rate to 10 basis points. Picture: Bianca De Marchi/ AAP
The RBA is expected to lower the interest rate to 10 basis points. Picture: Bianca De Marchi/ AAP

There are 11 lenders currently offering home loan rates under 2 per cent, while the lowest advertised variable rates at the major four banks are between 2.69 and 2.72 per cent.

Figures from the Australian Banking Association show 500,000 owner-occupier loans, or 8 per cent of all mortgages, have been refinanced in the past 12 months.

ABA chief executive Anna Bligh said if the central bank did decide to shave rates on Tuesday, lenders would attempt to pass on as much of the rate cut as possible.

"It's a brave person that predicts anything on Melbourne Cup Day either on or off the track, but if we do see that, I think banks will do what they've done throughout the past 12 months, and that is pass as much as they possibly can on to their customers," Ms Bligh said.

Australian Banking Association CEO Anna Bligh says banks will attempt to pass a rate cut on in full. Picture: Bianca De Marchi/ AAP
Australian Banking Association CEO Anna Bligh says banks will attempt to pass a rate cut on in full. Picture: Bianca De Marchi/ AAP

"We need to remember that it's not only borrowers who are customers but also people who have savings and deposit accounts, and they're getting very, very low rates. So banks will want to balance all of that out."

Economists are predicting the RBA is likely to cut the cash rate by 10 basis points and increase its bond buying activity to alleviate economic pressures sparked by the coronavirus-induced recession.

In March, the central bank cut the cash rate and implemented unconventional monetary policies in response to COVID-19. The measures included a bond-buying regimen and a term funding facility to provide cheaper liquidity to banks.

RateCity research director Sally Tindall says the number of lenders offering cuts under 2 per cent could double. Picture: Supplied
RateCity research director Sally Tindall says the number of lenders offering cuts under 2 per cent could double. Picture: Supplied

RateCity research director Sally Tindall said a prospective interest carving would likely double the amount rates advertised under 2 per cent; however, the majority of lenders are only offering cheaper loans to new customers.

"While the banks are outbidding each other to attract new customers, the real question is whether the banks will pass a cut on to their existing ones," she said.

"There's a lot of mortgage holders out there who could only dream of having a rate that started with a two, let alone a one."

Originally published as Australia's lowest-ever home loan rate


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