Mortgage pain: 40% of Aussie borrowers unprepared if rates remain high in 2025

The Reserve Bank of Australia (RBA) held the cash rate at 4.35% at its final board meeting of 2024, with long-awaited rate cuts unlikely to offer any relief to borrowers until well into the new year – potentially even May, according to some major bank predictions. 

Can Aussie borrowers afford to wait that long? A new Canstar survey of over 2,000 Australians reveals that, of those with an owner occupier mortgage, only 60% feel financially prepared for interest rates to remain elevated into 2025.

28% of borrowers say they are not prepared for rates to stay at their current level, and 12% are unsure.

Impressively, one-third (33%) of borrowers who are prepared for rates to remain higher for longer say they’ll still be able to meet the repayments if rates climb even higher.

How are home loan borrowers cutting back?

With so many borrowers feeling like they don’t have the funds to continue making mortgage payments at higher rates, or unsure if they can continue, it’s logical to assume that many are making cutbacks in other areas. When surveyed, the 40% of owner occupiers who aren’t sure or don’t have funds to keep paying the mortgage at higher interest rates said they would consider the following options: 

• 72% could cut back on living costs further
• 16% may need to sell their property
• 15% might draw from other investments
• 11% would consider seeking help from family or friends
• 8% might apply for hardship assistance from their lender; and
• 2% have alternative options.

Note that, of the options listed above, respondents were told they could tick all that apply.

What can borrowers to do ease the mortgage pain?

Refinancing to a low-cost lender can be an effective option for those in a position to switch.  Owner occupiers who haven’t reviewed their mortgage since the beginning of the current rate hike cycle are likely paying an estimated interest rate of 7.11%.

In contrast, the latest RBA data from October 2024 shows the average owner-occupier variable rate for new customers sits at just 6.25%. This means someone who refinances or haggles to the average new customer rate could effectively give themselves more than three standard cash rate cuts (3 x 0.25% pts). On a $600,000 debt and 25 years remaining, this would drop their monthly repayments by $325.

That said, savvy owner-occupiers can do even better than this. Canstar research shows there are 36 lenders offering at least one variable rate under 6% (excluding eco, first-home buyer, and introductory loans). If that same borrower refinanced to a rate under this mark, they would see their monthly repayments drop by at least $421.

A borrower with a $600,000 mortgage who is currently on an interest rate of 7.11% with 25 years remaining might be repaying round $4,283 per month – refinancing to a rate of 5.99% could mean a monthly repayment of $3,862, a saving of $421 a month. (Bear in mind, refinancing a home loan can include fees, so these will need to be factored in also).

When can borrowers expect rate cuts?

Three of the big four bank economic teams – Westpac, NAB and ANZ – forecast that the first cash rate cut will come in May 2025, following the March quarterly inflation data, due out in late April. CommBank, meanwhile, predicts a cut in February.

Westpac economists forecast 4 rate cuts to come, as do the team at CommBank. NAB forecasts 5 and ANZ just 2.

Canstar’s Data Insights Director, Sally Tindall, says, “This year has been incredibly tough for households with a mortgage, particularly those that had very little in the tank to start with.”

“While there has been a small amount of relief from the stage three tax cuts and government electricity rebates, for many families that extra cash has barely touched the sides.

“Cash rate cuts are still highly likely to materialise in 2025 but exactly when and how many are still up in the air. While May is firming up to be a possibility for the first cut, a couple of wobbly datasets could throw this timeline into disarray.

“The economy might be on life support, however, the continued strength in the labour market has given the central bank some much needed time to get the inflation job done properly. The RBA isn’t going to pass up this opportunity by cutting rates early. 

“If you don’t have enough petrol in the tank to make it through the majority of 2025 without a rate cut, work on a plan to inject more fuel into your budget over summer.

“Spend half a day haggling or switching each of your recurring bills – the mortgage, electricity and gas, your home internet, even your mobile phone.

“If this isn’t enough to get your budget over the line, work out exactly what your plan B might be. Selling investments, moving house, even applying for hardship with your bank might serve as effective circuit breakers, but they each require careful consideration.

“The last thing you want to do is to have to make big decisions on the fly.”

Get alerted when home loan rates change and set up a watchlist to track interest rate changes across over 80 lenders. Only available on the Canstar App, which you can download here.

Cover image source: Chay_Tee/Shutterstock.com