Higher rates for longer: Aussie homeowners brace for year ahead despite potential cash rate cut

There’s no doubt the last couple years of rising interest rates and a cost of living crisis has put the squeeze on the millions of Australians that have a mortgage. However, despite a potential cash rate cut, Canstar’s latest Consumer Pulse report shows the majority of borrowers have put to rest any idea of financial relief, instead resigning themselves for a cash rate that stays higher for longer.

Are borrowers prepared for another year of higher interest rates?

While easing inflation has meant there are promising signs the RBA will slice the cash rate and deliver relief to home loan repayments across the country, the majority of mortgage holders have stated they’re prepared for the high interest rates to continue throughout this year.

According to the Consumer Pulse Report, three-fifths (60%) of owner occupiers and 71% of investors are prepared for elevated rates in 2025—a stark increase from the previous year for both groups.
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* Of those with a mortgage.

What about borrowers who aren’t prepared?

More than one-quarter (28%) of owner occupied borrowers and 22% of investors admitted they’re not prepared for interest rates to remain higher for longer, which suggests they either haven’t got any more flexibility in their budget to keep up with higher repayments or are banking on a rate cut to provide some relief.

While there’s no harm in borrowers being hopeful a cut is coming, it’s never a guarantee. Despite inflation easing, the RBA has to balance a number of changing and volatile sets of data—which means there is always the possibility that a cut could be off the table just as quickly as it was on it.

For owner occupiers who admitted they aren’t prepared to endure higher rates for an extended period, 72% said they’ll need to cut back on living expenses to keep up with repayments, while 16% said they’d need to consider selling their home if rates stay higher for longer.

Investors are more likely to look at selling their property as an option, with 33% of those unprepared for higher rates saying they’d consider putting the property up for sale. However, 47% would aim to draw from other investments first.

What options are there for borrowers trying to stay afloat?

Getting relief through reduced mortgage repayments can make a huge difference to a household budget, and that can start by switching to a lender offering a lower interest rate.

According to the Consumer Pulse Report, 10% of borrowers refinanced to a different lender and got a better deal in the last year. Or, if you like your lender, but think you deserve a better rate, you could be like the 21% of borrowers who negotiated their interest rate with their current lender to get a better deal.

Analysis by Canstar shows that on a $600,000 mortgage paying principal and interest with 25 years remaining, a 0.25% cut to an interest rate can save $92 on monthly repayments, or more than $1,000 in a year.
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Source: Canstar.com.au. Based on a $600,000 loan, owner occupier paying principal and interest, 25 years remaining.

How do you negotiate with your bank?

While it may seem a little overwhelming, asking your bank for a better interest rate is something borrowers can and should be doing at regular intervals during their loan term.

To get you started, it comes down to three key steps:

1. Know the rate you’re on—and who offers better
   • Do your research to see what other lenders are offering and how that compares to the rate and loan term you’re on. Arming yourself with the best rates in market, and finding out what your current lender is offering to new customers, are a good place to start.
2. Make sure you’re a ‘high value’ customer
   • If you want a better rate, you need to speak your lender’s language. Make sure you’ve got enough boxes ticked to be in a great position to negotiate. For example, are you currently paying off principal and interest? Are you considered to have a good credit score? These things can position you in a better light, with better bargaining power.
3. Make the call—but come prepared
   • You might want to have a script or notes prepared with what you’d like to say, and the rate you’d like to be given. Being prepared is half the battle.

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