Two-year fixed-rate loans continue to fall below variable offerings: RateCity

Interest rates on 90 two-year fixed-rate home loan offerings in the RateCity.com.au database fell in June.

The cheapest two-year fixed rate home loan on the mortgage comparison website is HSBC’s 4.59% rate while the lowest ongoing variable rate in RateCity's database is 4.74% by non-bank lender State Custodians.

Lenders to have cut their two-year fixed-rates recently include CUA, which cuts its offering to 4.89% (also the rate for its three-year fixed rate home loan) with the pace of fixed-rate cuts not slowing down in June, according to RateCity.com.au.

The gap between fixed and variable rates may encourage some conservatively minded borrowers to consider taking out a two year fixed-rate below 5% if they form a view that rates will be higher between now and 2015.

“With fixed rates this low, it's a good time to consider fixing if you're concerned about rising interest rates. But don't be surprised if interest rates fall further before they start climbing again,” says RateCity.com.au chief executive Alex Parsons.

He believes there could be more RBA rate cuts to stimulate the housing market.

“It wouldn't be surprising to see a rate cut next week as the past rate cuts seem to have made little impact on stimulating the home loan market. Since November 2011, the Reserve Bank has cut the cash rate seven times by a total of 2.00 percentage points. While it's now at a record low of 2.75%, there's been very small growth in the home loan market.

Most economists though expect the cash rate to remain on hold in July when the RBA meets next week Tuesday, according to a poll by Bloomberg.

A rate cut in August is tipped by half of economists.

Two-year fixed rates are not a very popular product accounting for around 10% of the fixed-rate market, according to figures by another comparison website, finder.com.au.

Fixed rates currently accounts for between 20% and 30% of all home loans (fixed vs variable) so that gives two-year fixed-rates a market share of between 2% and 3% of the whole market.

Two-thirds of borrowers prefer three-year fixed rates, while one in five prefer a five-year fixed-rate term.