Several major lenders are now offering two-year fixed home loan rates below 5%, and that sends an interesting signal about where they see the economy heading. Fixed rates are essentially a bet on the future, and pricing them under 5% suggests banks are confident that inflation will continue to ease and the Reserve Bank is unlikely to lift the cash rate further.
It also shows lenders expect funding costs to moderate, allowing them to pass on sharper pricing to borrowers. For customers, sub-5% fixed rates can look attractive compared to variable rates that remain higher, though the trade-off is less flexibility if rates fall further.
Overall, the move points to a mindset of cautious optimism, and they’re positioning to capture borrowers ready to lock in certainty. It’s both a competitive play for market share and a subtle signpost of their economic outlook.
In this week’s newsletter, we look at what sort of income is required to be approved for 95% loan at the top end of First Home Guarantee property price caps. Spoiler alert – it’s a lot!
The expanded Home Guarantee Scheme is lowering barriers, but for single applicants the numbers remain challenging in high-cost markets.
Yes, a 5% deposit instead of 20% is a big win, and avoiding Lenders’ Mortgage Insurance (LMI) can save tens of thousands up front. But the repayment side of the equation is where reality bites.
Take Sydney as an example. At the new cap of $1.5 million, a 5% deposit is $75,000—a big stretch for one person. Even with the LMI exemption, the loan size is still around $1.425 million. Servicing that on a single income is a tough ask, particularly with interest rates still sitting at levels that test borrowing capacity.
Monthly repayments on a loan of that size can easily surpass $8,000 at today’s rates. That’s why most experts say singles in high-value markets will still need to be extremely disciplined, or consider alternatives.
One pathway is to apply jointly with another first-home buyer. Two incomes not only double the saving power for a deposit but also boost borrowing capacity, making repayments more manageable. Another option is that some lenders will consider expected rent from a housemate or boarder as part of income. For example, renting out a spare bedroom could add several hundred dollars a week to cash flow, easing serviceability pressures.
Capped out income requirements
So while the scheme helps cut years off the time it takes to save a deposit and removes the LMI cost burden, single applicants in pricier cities will still need to think creatively—whether that’s teaming up, renting out a room, or broadening their search to more affordable markets.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
