Online bank to break 2% fixed rate barrier

Boutique lender Bank of Us is set to introduce one, two and three-year fixed interest rates at 1.99 per cent tomorrow, becoming the first Australian lender to break the 2 per cent barrier.

The Tasmanian customer-owned bank cut its one and two-year fixed rates by 0.6 per cent, while its three-year fixed rate was slashed by 1.14 per cent.

Canstar finance expert Steve Mickenbecker said the savings on offer were the biggest seen yet.

“Bank of Us has come from nowhere in the rate rate to now be the market leader at 1.99 per cent,” Mr Mickenbecker said.

“The difference a rate below 2 per cent can make is huge.

“Switching from the average variable rate of 3.47 per cent to a 1.99 per cent fixed rate on an average $400,000 loan can put $313 per month, or over $3,700 a year, back in borrowers wallets.

“It will be interesting to see how long it takes before variable rates catch up.”

Bank of Us’ cut follows four providers cutting variable rates for investors over the last week, and another three providers slashing fixed rates.

Canstar said the average variable interest rate for investors paying principal and interest was 3.85 per cent, while the lowest variable rate was 2.69 per cent.

Last week, Freedom Lend introduced a new variable home loan rate special of 2.17 per cent, as competition between online lenders continues to ramp up.

That offer followed Reduce Home Loans reducing it’s variable rate to 2.19 per cent.

“It’s early days, but the property market signals of recent weeks are suggesting a softer landing than many have feared, and lenders are continuing to react with low interest rate records tumbling by the week,” Mr Mickenbecker said.

“Pricing for risk has become more and more prevalent in the market of late. Borrowers who have come through COVID-19 in sound financial shape are in a good position to refinance and take up these low rate offers.

“First home buyers and other borrowers with 20% equity can get a piece of the pie, with rates as low as 2.19%.

“Government incentives for construction and renovation will progressively kick in, and lenders will be chasing hard for their share of this market so we could see rates fall further.”