4.99% Home Rate Crash

MORTGAGES are set to fall again as lenders slashed their fixed rates yesterday and the Colonial State Bank introduced a limited offer honeymoon rate of 4.99 per cent.

The 4.99pc home loan rate, applying for a year, will be the lowest in 35 years.

On a $100,000 mortgage, monthly repayments would fall by about $140 from the standard variable rate of 6.95pc, the rate it reverts to after a year.

The former Rural Bank said the rate would not be available in NSW because it was a special line of funds to promote the opening of new branches in Queensland, Victoria, South Australia and Western Australia.

But public affairs manager Simon Morgan said he "wouldn't rule out" a similar offer being made in NSW. It is the latest signal that the banks are anticipating a fifth rate cut from the Reserve Bank despite comments from Treasurer Peter Costello that "we'd be happy if the banks pass (the recent rate reduction) on in full to the standard mortgage before anybody starts calling for future action".

The National Australia Bank will tomorrow cut its fixed rates by up to 0.5pc while managing director Don Argus predicted an official cut next month.

But the bank was immediately undercut by Austral Mortgage, which will offer a fixed rate of 6.95pc until 2000 - 0.25pc below the Nab's standard variable rate.

Dubbed the "home loan of the century", the 6.95pc applies for two-and-a-half years and marks a return of the period which preceded earlier interest rate cuts when fixed rates fell below the variable rate.

Managing director Vicky Edema said the rate would also apply to investment loans, and borrowers could split the 6.95pc into a fixed and variable component.

"And there is no monthly fee," Ms Edema said.

NAB said it had cut its fixed rates because of a "downward trend in the wholesale market".

Predictions of a cut are also gaining momentum among economists who said low rises in the consumer price index announced on July 23 and average weekly earnings the next day would prompt the Reserve Bank to move.

"A cut is likely within four weeks," said Citibank chief economist Stephen Koukoulas.

Ms Edema said borrowers should split their loans because "some of the loan principal can be paid down, during the term of the loan, without penalty".

Ms Edema recommended a part variable/part fixed-rate structure because "you can pay down your variable rate component at an accelerated pace, use the redraw facility on your variable rate component, buy peace of mind by fixing part of your loan at a low rate and gain from any rate reduction on your variable rate component".

The independent research house Cannex said the best time to fix was just before an official rate cut.

The best rates for a five-year fixed loan are HongKongBank's 7.72pc and NAB's 7.75pc.

But Mr Argus told the Institute of Chartered Accountants on Friday that "official rates are likely to be cut during the next month, before heading higher in 1998".

He also warned that confidence in the economy had fallen and while "there was a marked improvement in retailing", manufacturing and wholesaling "continue to perform poorly".

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