Despite a much anticipated rate cut, mortgage pain continues to bite

According to research conducted by Compare Club, the majority of brokers expect the RBA to lower the official cash rate by 0.25%, bringing it down to 3.85%. If passed on in full, the move would offer some much-needed relief to households feeling the pinch, with mortgage holders saving anywhere between $78 and $155 a month, depending on the size of their loan.

After two years of rapid rate hikes and extended holds, this could be the turning point homeowners have been waiting for. Our data shows 62% of brokers believe there will be further rate cuts by the end of the year — a welcome sign of easing after one of the most aggressive tightening cycles in recent memory.

But while a cut is good news, it won’t be a silver bullet. Our research shows Aussie mortgage holders are still paying over $1,300 more each month compared to this time last year. Even with a 0.25% reduction, many households will continue to feel the strain.

A $1 million mortgage would drop by around $155 per month, while a $500,000 loan would save around $78. While these numbers are small they still matter, but it’s not enough to undo the financial pressure caused by rising interest rates, energy bills, groceries, and rent.

What’s more concerning is that many borrowers are still unable to take advantage of better deals. Strict lending criteria, including the 3% serviceability buffer, are keeping refinancing out of reach for many Australians. Even those managing their repayments without issue are being told they don’t qualify for a better loan — they’re effectively stuck, trapped in what we call mortgage prison.

Our brokers are seeing this play out daily: frustrated borrowers who want to refinance, know it would save them money, but simply can’t pass the test under current rules. And while regulators introduced the buffer to protect borrowers from rising rates, there’s now a strong case for reviewing it. The rates have risen — now we need a system that helps people escape high-cost loans, not one that locks them in.

The challenge is compounded by rising living expenses. Lenders use a benchmark called the Household Expenditure Measure (HEMS) to estimate essential living costs. As inflation pushes those costs higher, HEMS increases too — further shrinking what borrowers are deemed able to afford.

And while refinancing has never been easier in terms of process and a good mortgage broker can do most of the heavy lifting. Only 41% of mortgage holders say they would consider refinancing if rates fall. A surprising 37% say they won’t refinance at all, despite the potential savings.

That’s a missed opportunity for many, as refinancing can be one of the fastest ways to free up room in the budget. It’s not the complex or time-consuming task it once was, but the perception remains.

For first home buyers, a rate cut could provide a small confidence boost. Sixty percent of Aussies believe lower rates will help new buyers, although most also expect it to drive up property prices again. Unfortunately, awareness of government support is low — just 43% in our research say they are aware of the Help to Buy scheme, and nearly half have never heard of it.

Many younger buyers are instead turning to family, with our brokers still seeing a heavy reliance on the bank of Mum and Dad which reinforces the predicted trend that a majority of younger Australians won’t be able to afford a home, unless they inherit the money to do so (along with the mortgage as well.)

Tomorrow’s decision will be closely watched. A cut would be a small but welcome break for borrowers but we are still a long way before we are out of the woods as home ownership and its affordability remains increasingly out of reach for more Australians than ever. 

Kate Browne is the head of research at personal finance brokerage Compare Club.