RBA’s recent rate pause leaves homeowners waiting for relief
Australian mortgage holders are likely to remain in a state of uncertainty until the end of the year, experts said, following the Reserve Bank of Australia’s (RBA) decision to keep the official cash rate unchanged at 3.85% last week.
Aaron Scott, co-founder of proptech service bRight Agent, described the RBA’s decision as a “cruel blow” for millions of Australians. “Despite the fact that a July cut would not have been enough to give most mortgage holders a meaningful reprieve, it would have been welcome by the millions of Aussies who are holding out for more cost-of-living relief,” he said. “Nobody will be breaking out the Wagyu beef or shiraz.”
Despite two rate cuts earlier in the year, many homeowners are yet to see any meaningful relief. RBA governor Michele Bullock said the board needed more evidence on inflation before making further moves, leaving borrowers waiting for clearer signs of improvement.
Economists say the benefits of lower rates also take time to filter through to households. AMP chief economist Shane Oliver (pictured) explained that most borrowers continue to pay their existing mortgage rates, using any savings from lower interest to reduce their debt rather than increase spending.
“The full impact of rate cuts take a while to build up,” Oliver said. “You hear these anecdotes from the banks saying their customers are maintaining their mortgage payments, so they are not using the lower interest rates to fund spending but instead use it to lower their debt.”
Oliver suggested that the situation may only start to improve for mortgage holders towards the end of the year. “Eventually, maybe after 12 months or so, they say, ‘Oh gee, my debt is lower than I thought it was, so maybe I’ll spend some of it’, and then the economy will get a boost,” he said.
“As the year goes on, people will start to feel better as they see wages rise faster than their payments. They will see their mortgages come down faster than they expected because they are paying more. You’d think it should start to become more apparent by Christmas.”
Data from Commonwealth Bank shows that only a small proportion of eligible home loan customers have reduced their repayments following the recent rate cuts. Most are choosing to maintain higher payments to pay off their loans faster, with only those in their 30s and 40s more likely to opt for lower repayments due to family and cost pressures.
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