Bank of Us in Tasmania offering record-low fixed mortgage interest rates of just 1.99 per cent

Mortgage interest rates in Australia have fallen below two per cent for the first time ever.

The Bank of Us is from today offering one, two and three-year fixed-rate mortgages for 1.99 per cent in a bid to attract borrowers during a recession.

The Tasmanian-based, customer-owned lender slashed three-year fixed rates on its FlexiDiscount home loan by 1.14 percentage points and trimmed one and two-year fixed rate loans by 0.6 percentage points.

There is a catch, however, with the loan only available to existing customers or Tasmanian borrowers, as COVID-19 border closures stop potential interstate borrowers from being verified in person at a branch.

‘Unfortunately we can’t offer this product to new customers who are not existing Tasmanian residents,’ the bank said in the fine print of its application form.

They have made history three months after the Reserve Bank of Australia in March cut the cash rate twice – taking it to a record low of 0.25 per cent.

Steve Mickenbecker, a group executive with financial comparison website Canstar, said Bank of Us now offered Australia’s cheapest mortgage rate.

‘Rates have now cracked the two per cent barrier, making the savings on offer to homeowners the biggest we’ve seen yet,’ he said. 

‘Bank of Us has come from nowhere in the rate race to now be the market leader at 1.99 per cent, having cut rates by 0.60 per cent for one and two-year fixed rates and 1.14 per cent for three-year fixed.’

Canstar calculated switching from an average variable rate of 3.47 per cent to a fixed rate of 1.99 per cent on an average $400,000 loan would save a borrower $313 a month and $3,700 over a year in home loan repayments. 

Bank of Us is also the third lender this week to cut mortgage rates with Mr Mickenbecker predicting standard variable rates would soon follow. 

‘It will be interesting to see how long it takes before variable rates catch up,’ he  said.

The Tasmanian-based customer-owned lender slashed three-year fixed rates on its FlexiDiscount home loan by 1.14 percentage points and trimmed one and two-year fixed rate loans by 0.6 percentage points. Pictured is a stock image

The Reserve Bank indicated in the minutes of its June board meeting it would not raise interest rates until Australia was closer to having full employment.

Economists consider this to be when unemployment is below five per cent.

Australia’s unemployment rate surged to a 19-year high of 7.1 per cent in May, up from an upwardly revised 6.4 per cent in April, as the second full month of coronavirus shutdowns saw 227,700 people lose their job or give up looking for one. 

The jobless rate is expected to keep increasing, with Treasury secretary Steven Kennedy this month forecasting an eight per cent peak.

Treasury had previously feared a ten per cent jobless rate, a level unseen since April 1994, while the Reserve Bank is sticking with that ten per cent unemployment rate forecast for June.

The central bank is also forecasting a ten per cent economic contraction in the first half of 2020, which would be the equivalent to four-and-a-half years of gross domestic product. 

Treasurer Josh Frydenberg also admitted earlier this month Australia was most likely already in recession, after official national accounts data showed a 0.3 per cent contraction in the March quarter – the first since 2011.

The June quarter figures, due out in September, are expected to show the economy going backwards again, signifying a technical recession. 

During the last recession in 1991, official interest rates were cut from 12 per cent to 10.5 per cent.

They had been at 18 per cent at the end of 1989.