Home loan pain to continue as inflation figures offer no relief

New CPI figures suggest mortgage pain and other pressures will continue for households ahead of the 2025 federal election. Here’s how borrowers can brace themselves.

Inflation remains stubbornly high in Australia despite falling elsewhere. Picture: iStock

Every month that passes without a Reserve Bank of Australia interest rate cut is another month where mortgage repayments remain 62 per cent higher than what people were paying before May 2022.

Wednesday’s monthly Consumer Price Index figures came in slightly lower than expected, but are unlikely to change the RBA’s mindset to keep its 4.35 per cent official interest rate on hold for the foreseeable future.

Annual CPI was 2.1 per cent, below many economists’ expectations, driven lower by falling fuel prices and government electricity rebates.

However, the RBA prefers to use the Australian Bureau of Statistics Annual Trimmed Mean figure for CPI, which strips out volatile prices, and that rose from 3.2 to 3.5 per cent from September to October.

It’s well above the RBA’s 2-3 per cent target range for inflation, and is why many experts are forecasting no rate cuts until mid-2025, despite many other countries already cutting their official rates in recent months.

Some of the concerning numbers in the new CPI figures were rents ticking higher to 6.7 per cent annual inflation, gas prices rising, holiday travel costs surging 8 per cent annually, and education, insurance and fruit and veg inflation all higher than 6.3 per cent.

These numbers are not easing the cost-of-living pressures on households, or the political pressure on the Albanese Government ahead on the 2025 election. No matter how they try to spin it, households are doing it tough amid falling living standards and soaring population growth pushing up key prices.

For Aussies battling big mortgages, it means they have to hang on much longer for interest rate relief, after being told in late 2023 that we should see cuts in mid-to-late 2024.

A $500,000 mortgage today costs $1301 a month more than it did in April 2022, and a $1m mortgage costs $2605 extra each month, according to Canstar.

Apart from hanging on grimly as costs everywhere climb and rate relief remains elusive, borrowers can also consider these five strategies.

REFINANCE

Competition is fierce among lenders, so shop around for a better rate to immediately lower repayment costs.

While government regulations make switching tougher because the average borrower needs a spare $1500 each month just to meet lenders’ mortgage servicing buffers, you can try to bargain with your existing lender for a lower rate if their competitors are offering one.

CONSOLIDATE

If you have high-interest consumer debts such as credit cards and store cards, consider consolidating them into the mortgage to reduce overall repayment costs.

While this means the outstanding home loan balance grows, overall savings are made as long as you don’t pile up fresh consumer debt.

SEEK SAVINGS

It’s easy to scan your recent spending because most payments today are done electronically.

Are there things you waste money on simply because they’ve become an expensive habit? Trim that spending fat.

Look for double-ups. Are you paying for the same memberships, cloud storage or subscriptions twice? That’s just throwing money down the drain.

The case for interest rate cuts remains finely balanced. Picture: iStock

EXTRA INCOME

Side hustles have boomed in recent years and online platforms make it easier than ever to generate extra cash.

There are plenty of platforms to make money from freelancing, ride sharing, room sharing, second hand goods, odd jobs, pet minding, storage space, car park sharing and much more.

OFFSET YOUR INTEREST

Anyone who has a mortgage should not need savings in the bank.

Instead they can pour that into their mortgage and use offset accounts or redraw facilities to retain access to their money while saving interest costs at the same time.

Originally published as Home loan pain to continue as inflation figures offer no relief