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Westpac has slashed its variable home loan rate below the other big banks – but only for a very select group of Australians

Jack Derwin

There's a new bargain home loan rate being offered by the country's second-largest bank, but most Australians will find themselves ineligible.

On Friday, Westpac announced it was lowering some of its rates for cashed-up customers, discounting its Flexi First Option Principle and Interest rate to 2.69% and undercutting the other big four.

To qualify for the discount, however, applicants will need to have a loan-to-value ratio of 70%, meaning you'll have to stump up 30% or more of the asking price yourself.

The criteria will exclude most borrowers, particularly those in the more expensive capital cities like Sydney, where the median house price would demand a deposit of around $300,000.

Even throwing apartments in the mix only brings the required deposit down by so much. Based on median property prices, Melburnians would still need a cool $210,000 to qualify, Canberrans $187,000 and Brisbanians $151,000.

In fact, taken across all capital cities, Australians would be shelling out a little shy of $200,000 to earn Westpac's due consideration for its cheaper loan. Across regional Australia, you're still scraping together almost 120,000 smackeroos.

With that in mind, and given rising unemployment, it's safe to say most Australians in the market won't be eligible for the discount.

It does, however, mark a growing trend among lenders, keen to target the best borrowers as Australia heads into its first recession in almost 30 years, and bad debts begin rising.

"Despite our economy moving towards a recession, lenders will be looking to expand their loan books with more customers, but especially low-risk borrowers who have a low LVR," Mozo director Kirsty Lamont told Business Insider Australia.

"This could be the start of a trend of low-interest rate offers for low LVR customers. Yesterday, Bank Australia introduced a new low variable interest rate for borrowers with less than 70% LVR and Macquarie reduced their less than 70% LVR fixed rates by 20 basis points at the end of May."

According to Lamont, by switching a $400,000 loan from 3.67% -- the average variable interest rate from the big four banks -- to $2.69% an owner-occupier would reduce their repayments by over $2500 a year.

Lending was largely tightened in the aftermath of the royal commission, with banks expected to do more to ensure their customers could service their loan. The teething period, taking place at the same time property prices were sinking in Melbourne and Sydney, even saw the regulator ASIC take Westpac to court -- and lose -- over its practice of responsible lending, ending in the notorious Wagyu and shiraz ruling.

While record-low interest rates, freezes on more than $160 billion worth of home loan repayments and the government's multi-billion-dollar safety net will help reduce pressure on homeowners and investors – at least for six months – the risk of default on 20-plus year loans is still heightened.

Expect to see more banks courting the cashed-up over the coming months.