Simple reason why Aussies mortgage stress could last until Christmas

News.com.au

11-07-2025

Under-the-pump Australian mortgage holders may still be feeling the impacts of the cost-of-living crunch despite the Reserve Bank moving on interest rates twice this year.
Households received a shock earlier this week when RBA governor Michele Bullock announced that the board was going to hold the official cash rate at 3.85 per cent, citing the need for further evidence on inflation.
bRight Agent co-founder Aaron Scott called the surprise hold a 'cruel blow' for millions of Australian homeowners.
'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.
But even if the RBA cut interest rates, it's highly unlikely mortgage holders would have felt any better.
AMP chief economist Shane Oliver explained that monetary policy had a lag for the simple reason households continued to pay their existing mortgage rates.
'The full impact of rate cuts take a while to build up,' Mr 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.'
But the economist tips household pain could soon ease as the year goes on.
'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,' Mr Oliver 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.'
The RBA's shock choice to pause interest rates comes after the bank lowered the official cash rate by 50 basis.
Starting out in February, the bank began its rate-cutting cycle by slashing interest rates by 25 basis points before moving again in May.
Combined, Australia's official cash rate has fallen from 4.35 to 3.85 per cent.
Despite the RBA cutting interest rates, Commonwealth Bank data shows that just one in 10 of eligible home loan customers chose to reduce their payments following the May interest rate cut.
This follows a similar trend in February after the first interest rate cut.
Taken together, the combined 50 basis points in rate cuts could reduce repayments on a $500,000 mortgage by $160 a month.
Commonwealth Bank general manager home buying Tess Sutherland said only a small percentage of customers were freeing up their cash, while most were maintaining higher repayments to get ahead on their loans.
'We let customers know that they have the option to reduce their repayments and we've made the process quick and easy,' she said.
'The choice is entirely in their hands, allowing customers to decide how they want to manage their money.
'We also found that those in their 30s and 40s were the most likely age group to reduce their repayments – perhaps not surprising, given many in this cohort may be juggling school-aged kids and high household costs.'