Funding cost to ease: a guide to the lowest rate home loan offerings fixed and variable starting from 4.89%

The RBA may have left the cash rate unchanged in February at 3%, but with the prospect that wholesale funding costs will ease, there are expectations that lenders may reduce variable rates independently of central bank cash rate decisions.

Lenders have already started reducing fixed-rate mortgage rates with Westpac becoming the first major bank this year to offer a fixed-rate home loan below 5%.

Today, Westpac-owned mortgage lender brands Rams also went under 5% on fixed rates, cutting its one-year fixed-rate by a large 40 basis points to 4.99% as well as making smaller reductions to two, three, four and five fixed-rate home loans.

Property Observer analysis of mortgage comparison websites, indicates the lowest fixed-rate mortgage offering to be a one-year fixed-rate mortgage offered by loans.com.au, the online arm of non-bank lender FirstMac at 4.89%.

Borrowers can fix at the same rate over two-years with iMortgage, the online offering of ASX-listed non-bank lender Homeloans Limited.

The lowest variable rate remains the 4.99% honeymoon rate being offered by Easy Street, owned and operated by Sydney-based Community First Credit Union.

The February monetary policy statement noted that funding costs were reducing but would take longer to flow through given that banks are still issuing mortgages with money raised when wholesale funding costs were higher.

The recent repurchase of $31 billion worth of government-guaranteed bonds by commercial banks is proof of the cheaper offshore funding, wrote John Kehoe in the Australian Financial Review this weekend.

The banks issued the bonds with the backing of the government’s AAA credit rating following the GFC in 2008 as offshore funding markets dried up. It allowed them to continue funding new mortgage lending.

The decline in wholesale funding costs are expected to benefit the smaller banks, among them Bendigo and Adelaide Bank, which last week, raised $850 million from investors via securitised residential mortgage-backed securities at the lowest rates since the GFC.

“Given the reduction in wholesale funding costs, we should expect to see banks reducing mortgage rates, despite the fact the RBA has held, ‘says Acquasia credit strategist Mark Bayley.

These are the lowest advertised mortgage rates based on listings by ratecity.com.au, Mozo.com.au,  infochoice.com.au and homeloanfinder.com.au as of February 11:

Where the headline rate is the same, the lender with the lowest comparison rate gets preference.

Lowest variable rate offerings:

Lowest one-year fixed-rate offerings

Lowest three-year fixed-rate offerings