Mortgage holder pain set to remain until 2026
Consensus has firmed that the Reserve Bank of Australia will announce its second rate cut in the cycle in May, but it won't immediately solve many household budgets.
The cash markets and experts are widely predicting the Reserve Bank of Australia will slash the cash rate by 25 basis points to 3.85 per cent when they meet on May 20, following a first rate cut in February.
Equifax executive general manager Moses Samaha said while a rate cut would be welcomed by many, particularly those under financial strain, it's not a silver bullet.
'There is always a group of customers who remain challenged,' he told NewsWire.
'If we look at New Zealand for example, they've had five rate cuts since August and we really haven't seen a material improvement in that cohort of customers or the amount of customers who are in arrears.'
'That tells me, any cushion these rate cuts are providing for those customers is really getting eaten up elsewhere and there's a number of external factors that make it hard to pinpoint'.
Previous modelling released by Equifax in February showed the full effect of a rate cut takes between six to nine months to be felt.
Mr Samaha said getting relief from the central bank will certainly help Australians, but due to the high levels of debt in Australia, it will likely take more than a single rate cut to help some households.
'The average house value is about one and a half-million dollars, we probably need quite a few changes before its material.
'If you do the rough maths, assuming five changes at 25 basis points, you need all five rate cuts to create around $20,000 in savings on an annualised basis and it'll probably take us a year to get there.'
Australia's Cash Rate 2022
Mr Samaha said other cost of living presures could absorb any savings from a mortgage.
'The question is where does the money go from a hierarchy perspective for a consumer. Does it go to improving their position on a home loan, does it go to their expenses and that changes over time depending on their priorities,' he said.
Separate research from Roy Morgan shows there are 990,000 Australians considered 'extremely at risk', which is significantly above the 10 year average of 14.7 per cent.
There are currently 644,000 more at risk of mortgage stress Australians today compared with three years earlier.
Roy Morgan chief executive Michele Levine said 1,451,000 million Australians are at risk of mortgage stress, although this number is coming down.
'After increasing for three straight months from October, the RBA's decision to reduce interest rates by 0.25 basis points to 4.1 per cent in mid-February has now led to back-to-back monthly reductions in mortgage stress which is now at its lowest since June 2023 – when interest rates were first increased to 4.1 per cent.'
NED-9108-Monthly-Inflation-Indicator
According to Equifax Australians are taking matters into their own hands, with refinancing growing 6.5 per cent year on year in April up to 36.7 per cent of all inquiries.
Despite the pressure some households are feeling, Mr Samaha said there are some green shoots emerging for households.
'Its not all doom and gloom.
'We are still below prepandemic stages in terms of the number of customers that are in arrears but it is one to watch.
He said Australian consumer confidence is growing on the back of more financial relief coming and a stable government which is showing up in other parts of the market, including demand for both secured and unsecured debt.
'Equifax data from New Zealand shows that while anticipation of rate cuts increased mortgage demand, interest really picked up steam after two to three rate cuts,' he said.
'This suggests homeowners are just getting started, and the mortgage market will significantly heat up in the coming months.'
Mr Samaha said the growth in credit card and personal loans is a sign of strength for the Australian economy.
'They are signs that the economy is getting back to normal where people rely and use credit to drive outcomes they need in their lives,' he said.
'It was a different story for a few years after the pandemic, so we are definitely into a more steady state part of the market.
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