Alex’s home loan went through the roof. A rate cut is such a bonus

Sydney home owner Alex Armstrong says he and all his peers have been waiting and hoping for interest rates to start coming down this year.

“Thank God for that,” he said, after the Reserve Bank cut the cash rate by 0.25 per cent to 4.1 per cent on Tuesday. Even a small reduction in his mortgage will help his family.

He’s not alone in feeling pleased at the news and hoping his bank passes it on. Sydney home owners whose mortgage repayments have soared have been waiting for any rate relief, but any change from here will be modest in the context of the 13 rate rises that began in 2022.

“I know it’s a small one but anything helps. I think it’s just that little bit of extra money back into savings,” he said.

The small business owner in recruitment, 45, and his wife bought their three-bedroom-plus-study house in Allambie Heights in late 2019, upgrading from an apartment, and enjoyed lower interest rates at first.

Once his repayments rose the family with two children at school became more stringent with their budget, cutting back on takeaway meals and smaller holidays.

They could not afford a turnkey house and instead opted for a home in need of renovation, planning to live in it for 12 months and then make upgrades. But their renovation was delayed and spare cash directed to a buffer for rate rises.

“As a family with two kids, and they’re growing and the cost of everyday life is going up, any money, even if it’s $50 to $100 back in your back pocket per week, is such an added bonus,” he said.

“Is one rate rise going to change much for us? Probably not, but if it starts and there are two or three consecutives, which would put more than a couple of hundred dollars back in our back pockets, it means we can start saving again for maybe a holiday somewhere or maybe looking at doing other things that we want to do with the house.”

His friends are on the same page. “Everyone I’m talking to in my peer group is relatively the same. Everyone’s really hoping that rate cuts start to come through this year.”

Modelling from loan comparison platform Canstar shows an owner-occupier who took out a $500,000 home loan in April 2022 would be paying back $3190 a month by now.

That’s $1238 more a month than when they took out a loan. One rate cut will save them $77.

Canstar data insights director Sally Tindall said stressed borrowers will take any savings they can and either pay it off their mortgage or bring it back into their household budget.

“In the context of things, it’s literally a drop in the ocean, when you put it against how far the monthly mortgage repayments have risen,” she said.

“But borrowers that have been stretched to the nth degree know not to sneeze at a 2 per cent drop in their monthly repayment.

“Every single dollar counts at this point in time.”

Home owners who borrowed their maximum at rock-bottom rates have been feeling the heat, she said, but have prioritised paying their mortgages over discretionary spending and have saved money into offset accounts.

“So many households with this extreme amount of pressure on them have managed to keep it together. In some cases they’re keeping it together with sticky tape,” she said.

Armstrong’s mortgage broker Anthony Landahl, managing director of Equilibria Finance, said borrowers had been cutting back discretionary spending, such as on dining out and gym memberships.

Some had held off buying a new car or had been making decisions about what school to send their children to with their mortgage in mind, he said.

He has watched higher repayments eat into clients’ significant savings buffers in offset and redraw accounts that they had built up during the lockdown years.

“For some clients where they might have held an investment property as well, they’ve been forced to sell up an investment property,” he said. “We haven’t had a lot of clients say, ‘I can’t afford my house any more.’”

Many of his clients will save between $85 and $250 a month after one rate cut, but if there are four rate cuts, they could save up to $1000 a month for those with larger loans.

Westpac senior economist Matthew Hassan said while a rate cut will bring relief for some home owners, housing affordability remains a challenge.

Hassan said the rate cutting cycle is expected to be “slow and measured” over the course of the year, adding that buyers hoping to increase their borrowing capacity shouldn’t expect interest rates to sink as low as they did in Covid.

“This [interest rate cycle] will be a slower pace … taking us back to something neutral rather than the really low rates that we’ve seen in the past,” he said.

“It’s still relief, it’ll breathe a little bit more life into the consumer and housing sectors, but for those hoping for a decisive and big shift, it’s not quite there.”