Interest Rate Cut: ‘Too Little, Too Late’ for Some Borrowers

The Reserve Bank of Australia (RBA) has made its first cash rate cut in more than four years, lowering the official cash rate by 25 basis points to 4.1%. While this move is being hailed as a lifeline for many Australian borrowers, new data shows it may not be enough to ease the financial stress faced by thousands. With nearly 40% of homeowners needing significant relief, the rate cut could be considered "too little, too late" for those struggling to keep up with soaring mortgage repayments.

Key Highlights

• The RBA's 25 basis point cut brings the cash rate down to 4.1%, which could result in a $103 reduction in monthly repayments for the average Australian mortgage of $641,416—provided banks and lenders pass on the full rate cut.

• Finder research reveals that nearly 40% of borrowers need at least $500 in monthly mortgage relief to regain financial security, with some requiring even more—up to $1,000.

• As many as 1.2 million Australians are struggling to make their mortgage repayments, and 11% have missed a payment in the last six months.

• While the rate cut provides some immediate relief, it may not be enough to cure the broader cost of living crisis, with cost pressures expected to persist.

• Finder’s Graham Cooke advises against using the rate cut savings for other expenses and recommends maintaining the same repayments, which could reduce the overall loan term by a year and prevent further inflationary pressures.

Mortgage Relief Still Inadequate for Many

Despite the RBA’s decision to cut rates, research conducted by Finder shows that this reduction may not be sufficient for a significant portion of Australian homeowners. On average, borrowers could expect to pay $103 less per month on their mortgage, if the full cut is passed on by their lenders. However, the study indicates that many borrowers need much more.

Around 37% of homeowners reported they would require at least a $500 drop in their monthly repayments to feel financially secure, and 14% of respondents said they would need a $1,000 reduction or more to avoid stress. This suggests that the RBA’s move, though welcomed, is unlikely to provide the relief needed for a large section of the population.

Widespread Financial Strain

Finder’s Consumer Sentiment Tracker found that 35% of borrowers are currently struggling to make their mortgage repayments. This equates to over 1.2 million Australian homeowners, with an alarming 11% of them missing at least one mortgage payment in the past six months.

Graham Cooke, Head of Consumer Research at Finder, acknowledges that while the RBA’s rate cut is a positive step, many Australians facing financial stress need a more significant reduction to remain afloat. "It’s definitely a step in the right direction but quite a chunk of those needing (mortgage) relief need more than this," Cooke said.

A Long Road Ahead

Though the rate cut offers some hope for borrowers teetering on the edge of default, the overall cost of living pressures remain high. Cooke cautioned against using any savings from the rate cut to boost spending or investments, instead recommending that borrowers continue making the same repayments to pay down their loans faster.

Moreover, while the rate cut may have been a factor in easing cost of living pressures slightly, it’s not the solution to the broader crisis. "It does look like we may be at the beginning of the end of the cost of living crisis, but it will take time still," Cooke concluded.

Summary

The RBA’s first interest rate cut in over four years may offer a modest reprieve for some, but for many homeowners, it doesn’t go far enough to alleviate financial stress. With nearly 40% of borrowers needing more than double the amount of relief provided by the current cut, the rate reduction might be seen as too little, too late for those struggling to keep up with mortgage repayments. As the cost of living remains high, many Australians will continue to face challenges, and it could take more time for the situation to improve.

Source: REA