Will Saw breathed a sigh of relief on Tuesday when the Reserve Bank of Australia cut the official cash rate for the first time in more than four years.
While the decrease of a quarter of a percentage point is welcome, the 29-year-old Melbourne office administrator would like it to fall further.
Saw is part of a cohort who bought a home during the period of elevated interest rates amid hopes they would soon ease.
Saw and his partner bought their first home, in the beachside suburb of Seaford, south-east of Melbourne’s city centre, in July last year, paying $620,000 with a deposit of about 10%. Saw said Tuesday’s cut would save them about $90 a month if their bank passed it on in full.
“It’s not a massive amount but we sort of hope that now they’ve made one cut it’s sort of a step in the right direction towards, if things all go well, another quarter of a percentage [point],” Saw said.
“Each cut will help a little bit more – it takes the stranglehold off a little bit.”
The Reserve Bank on Tuesday cut the cash rate – which guides the mortgage rates set by banks – to 4.1%, its first decrease since the early days of the Covid pandemic.
The cash rate had sat at 4.35% since November 2023 in a period marked by high inflation and fast-rising living costs.
Saw believed people like him who bought homes in the past few years were “probably OK” because they would have factored elevated interest rates into their finances when buying property.
He said those who bought properties at the height of the pandemic – when the RBA dropped the cash rate to an unprecedented 0.10% in an effort to stimulate the economy before ratcheting it up to 4.35% – would have suffered more.
“I’d say they are probably the ones who are feeling it the most,” he said.
Freya and Max, who asked that their last names not be published, bought their first home four years ago when interest rates were very low.
The couple, who live in Melbourne’s Essendon with their two young children, had a fixed rate mortgage of 1.86% until it expired in December.
Max said their new variable rate of 6.13% meant they were paying 3.2 times more interest than they had been on their fixed-rate loan.
Tuesday’s decision will save them about $150 a month and Max said he hoped there would be more cuts.
“It’s definitely better than nothing but … $150 won’t do a whole lot,” Max said. “Especially with the cost of living so high. It’s like one-eighth of your grocery prices a month.”
An independent Sydney auctioneer, Clarence White, said a lot of sellers were trying but failing to recoup their outlay after missing out on the boom that longer-term owners had enjoyed.
“Many have bought in the last three years and are now getting rid of them because the interest rates have gone too high and it costs too much to hold on,” said White, of Menck White Auctioneers.
“They’re hoping that they got growth out of it, and they really haven’t. It’s worth either what they bought it for, or a little bit less.”
Additionally, the number of Australians in mortgage stress has increased, according to data compiled by S&P Global.
The outer Melbourne suburb of Craigieburn had the highest arrears rate in the country, followed by Bateau Bay on the New South Wales central coast and Liverpool in western Sydney.
The report noted that arrears typically rose between December and February due to increased consumer spending over the Christmas period.
Tuesday’s RBA decision means a household with a $750,000 loan will have their monthly repayments cut by $115 if their mortgage rate falls by 25 basis points, according to analysis from Canstar.
The RBA governor, Michele Bullock, said the reduction “does not imply” further rate cuts are coming.
She said while the market was expecting more rate cuts this year, the central bank’s board needed “more evidence” that inflation was continuing to fall before it decided what to do.
