Most of the 3.3 million mortgaged homeowners will see no increase in repayments if the Reserve Bank raises rates on Tuesday.
Financial markets and many economists expect the RBA to lift its cash rate target to 3.85% from 3.6%, signaling the lowest and shallowest rate hike cycle in memory. Inflation roared back In the second half of last year.
The central bank cut rates three times last year, but for many customers of the three or four major banks, lower variable rates did not automatically translate into lower home loan payments.
National Australia Bank reported that eight in 10 of its variable mortgage borrowers did not see their payments reduced by three rate cuts last year, and Commonwealth Bank’s share was between 85% and 90%.
ANZ did not report how many customers approached the bank to reduce their repayments after each cut, but the share choosing to do so was unlikely to be significantly different, said Sally Tyndall, director of Constar data insights.
“Many people are paying extra on their home loans, meaning their direct debits will remain unchanged from January 2025,” Tyndall said.
“What that means is they’re in a great position to deal with a rate hike. Their monthly repayment won’t go up unless they intervene.”
High interest payments still affect how quickly the home loan is paid off, but “it doesn’t affect their daily budget,” she said.
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Westpac is the only major bank to automatically adjust their direct debit after a rate cut if the borrower is asked to pay the minimum amount.
Macquarie takes the same approach.
Jonathan Cairns, chief economist at Challenger and a former senior RBA official, said central bankers focused more on what they call the “cashflow channel” when rates change, or the effect of changes in household interest payments from a rate move.
“It’s a very visible thing, but when we build our financial system with mortgage offset accounts, it actually blunts that channel,” Kearns said.
“It’s better for homeowners to manage their cash flow and makes that aspect less effective.”
Research shows that the impact on household consumption from rate moves is similar, whether household debt is fixed or variable, Kearns said.
There are a range of other ways in which the RBA’s monetary policy decisions flow through the economy: the “wealth effect” as asset prices (especially house values) rise or fall; exchange rateand changing incentives for households and businesses to save or spend and invest.
“This spreads the impact of monetary policy changes more broadly across the economy,” Kearns said.
Those who paid the minimum payment through rate cuts last year will, however, pay Bear the burden A rate hike expected on Tuesday, and a brace for further hikes in the coming months, is necessary.
Tyndall said that for homeowners struggling to cope with mortgage and other rising household bills, a further rate hike or more means a wargame for family finances.
She says to consider seeking advice from financial counseling services and the free National Debt Helpline.
“The sooner you contact them or the bank, the more they can help you.”
