Interest rate cuts ‘too little, too late’ for some

The RBA’s first cash rate cut in more than four years is too little, too late for some, with new data revealing almost 40 per cent of borrowers need at least four more cuts to escape financial stress.

Almost 40 per cent of mortgage holders need more interest rate cuts to escape financial stress. Picture: Richard Walker

The RBA’s first cash rate cut in more than four years may be too little, too late for some, with new data revealing almost 40 per cent of borrowers need to knock at least $500 of their monthly mortgage repayments to escape financial stress.

Finder research revealed the RBA’s 25 basis point cut to 4.1 per cent would see repayments on the average home loan of $641,416 drop $103 per month if the rate cut was passed on in full by banks and lenders.

Head of consumer research at Finder, Graham Cooke said while this rate cut was a lifeline for millions of Australians teetering on the edge of mortgage default, for some it may be too little, too late.

“It’s definitely a step in the right direction but quite a chunk of those needing (mortgage) relief need more than this,” he said.

“This cut equates to just over $100 off the average mortgage but we found when we asked borrowers how much relief they needed, nearly 40 per cent said five times this amount.

“That’s about four more cash rate cuts.”

Finder head of consumer research, Graham Cooke. Picture: Supplied

Finder found 37 per cent of borrowers needed their monthly repayments to drop by at least $500 to be financially secure, while 14 per cent needed a drop of $1000 or more.

Finder’s Consumer Sentiment Tracker showed 35 per cent of borrowers struggled to pay their mortgage in February, which equates to 1.2m Australian homeowners, while 11 per cent missed a mortgage payment in the past six months.

Mr Cooke said while borrowers may be tempted to save, spend or invest the savings from this rate cut, he advised against taking it out of their mortgage.

“By continuing to make the same repayments on the average home loan (instead of pocketing saving), you would save a year off your mortgage,” he said.

“Another added benefit is that money doesn’t go back into the economy and contribute to pushing up inflation.”

Mr Cooke said Finder’s Cost of Living Pressure Gauge revealed cost of living pressure had begun to ease even before the RBA announcement.

“(The rate cut) is not enough to cure the cost of living crisis, but it’s a step in the right direction,” he said.

“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.”

Originally published as Interest rate cuts ‘too little, too late’ for some