Majority of Australian mortgagees don’t have repayment buffer
Worrying numbers of Australians are not ahead on their mortgages. Image: Canva.
  • Only one in four mortgagees are ahead on their mortgage
  • One major bank cut some borrowing rates
  • Rate cuts could see the fixed-rate cliff reduced for some

New data from comparison site Mozo has found that three out of four Australians with a mortgage do not have a repayment buffer.

The research also found that only 50% of those not ahead of home loan repayments were making capital and interest payments to make headway into their debt.

The survey came as the latest inflation figures from the Australian Bureau of Statistics (ABS) showed continued slowing. Of course, many are wondering how the Reserve Bank of Australia (RBA) will react come the first Tuesday of May, with Mozo data showing a rate rise of 25 basis points next month could add $92 to monthly repayments on a $600,000 mortgage.

Only one out of four ahead of their mortgage

The research by Mozo found that only 25% of people were ahead on their mortgage, and 22% of those with a mortgage were behind or only making interest payments.

What does it mean to be ahead? Mozo’s banking expert Peter Marshall said:

“Getting ahead on your mortgage basically means having a redraw facility or offset account. If you are making capital and interest payments, then you are making inroads into your debt, but only at the pace your lender requires you to.”

Peter Marshall, Mozo banking expert

Marshall added that “A repayment buffer is [like] a ‘rainy day fund’, in case something unexpected happens, like the loss of your job. That is always more comfortable.”

Will interest rates go up in May?

Mozo data showed a range of movements this month, following the pause on interest rates. Recently, NAB and 32 other lenders on Canstar‘s database cut owner-occupied fixed home loan rates in April.

It could be good news on one front, with the fixed-rate cliff potentially shrinking:

“We have seen variable rates and discounts changing. We have also seen quite a few cuts in fixed rates, that will mean for some, the ‘fixed rate cliff’ they face won’t be quite as large as it would have been,” said Marshall.

The cuts made by banks and lenders prior to the May interest rate decision are also sure to make the ears of rate-weary borrowers prick up, but there’s more to the story.

Canstar’s group executive financial services, Steve Mickenbecker said, “The move by NAB and 32 other lenders on Canstar’s database to cut owner occupied fixed rates this month suggests variable rate cuts are in the future but gives no guidance on Tuesday’s Reserve Bank decision.”

“The banks reduce fixed home loan rates when their cost of longer-term funding goes down, and that has started to happen following the decline in Australian government bond yields. NAB’s cut to its three year home loan fixed rate neatly aligns with the fall in the three bond yield.

“A more accurate guide to variable home loan rates is the bank bill swap rate and is also closely aligned with the Reserve Bank cash rate. It has only moved down around 0.05 percent since the start of March,” said Mickenbecker.

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Note: Mozo rates correct as at 24 April 2023. 

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