Mortgaged Australians ride ‘Goldilocks’ market to get ahead
Australian borrowers have defied expectations by maintaining peak-rate mortgage payments even as interest rates tumble, with 90 per cent choosing financial security over extra spending.
The majority of homeowners have used falling interest rates to get ahead on their mortgage in what has emerged as the “goldilocks” market for mortgage holders.
A new report from national mortgage brokerage Loan Market Group has revealed nine in 10 homeowners on variable interest rates have not adjusted their repayments following two 0.25 per cent Reserve Bank cuts this year. Another 25 basis points cut is expected on Tuesday, after the shock decision to hold steady in July.
Executive director and chief executive of LMG Ewen Stafford said many borrowers were doubling down to set themselves up for the future after interest rates spiked to decade-highs in 2023
“They’re using this breathing room to get ahead, not spend more,” Mr Stafford said.
“This isn’t just a blip; it’s a change in how people are thinking about debt. They’re more focused on control, not just cheap rates.
“That tells us a lot about where they’re at: cautious, building buffers, accelerating the paydown of their loan, and setting themselves up. That’s a smart move.”
The new figures come ahead of next week’s RBA meeting, when another 0.25 per cent cut is widely tipped by market economists now that inflation is firmly within the target bank’s range and the unemployment rate is softening.
Financial comparison site Canstar estimates a typical homeowner with a $500,000 mortgage would be $2884 per year better off if the Reserve Bank does move.
AMP chief economist Shane Oliver said the slow pace of rate cuts was translating to a gradual increase in prices, which is a great scenario for those already in the market. He anticipates home prices are on track to rise 6 per cent this year, but acknowledged the scenario is making it more difficult for buyers to enter the market.
“At the moment, it all seems pretty benign because unemployment is still low and inflation is coming down,” Dr Oliver said.
“It’s like a Goldilocks sort of scenario, and the property market is responding accordingly.”
Dr Oliver expects it to take 12 to 18 months for the full extent of the cuts to be felt, which is when homeowners will start to adjust their mortgage repayments to make the most of their savings.
“Consumer confidence has improved, but it’s still below normal levels, which would be consistent with households being fairly cautious in responding to the initial interest rate cuts,” he said.
“ I suspect as you get more and more interest rate cuts, then that may start to change.”
Some banks are already responding to potential rate cuts, and have already moved to lower their fixed mortgage rates. Several are offering rates below 5 per cent.
Mr Stafford said homeowners who continued to pay down their debt may be able to leverage their forced savings to unlock equity or restructure their loan in the future.
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