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Few borrowers lower repayments despite rate cuts

Few borrowers lower repayments despite rate cuts
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Recent data from CBA has revealed just 10 per cent of variable rate customers reduced mortgage repayments following recent interest rate cuts.

The RBA’s May 25-bp rate cut brought some much-needed relief to Aussie borrowers.

Despite this, just one in 10 used the opportunity to lower mortgage repayments.

This was lower than the 14 per cent of customers who lowered mortgage repayments following the February rate cut.

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CBA’s general manager from the home buying team, Tess Sutherland, said these trends showed an appetite for consumers to get ahead on their mortgage.

“One in ten eligible customers opted to lower their home loan repayments after the May rate cut, which is really similar to what we saw following February’s cut. It shows only a small percentage of customers are freeing up their cash, while most are maintaining higher repayments to get ahead on their loans,” she said.

The data highlighted regional differences, with NSW borrowers accounting for 39 per cent of those who opted to lower payments – the highest proportion nationwide. Victoria followed at 31 per cent.

Borrowers aged 31–50 were the most likely to reduce repayments, with 66 per cent coming from this cohort.

This likely reflects financial pressures from family and household expenses. Investment loan holders were also more inclined to adjust payments compared to owner-occupiers.

“In a state like NSW, where property prices are the highest in the country, it makes sense more customers are choosing to ease financial pressure by adjusting their repayments. It’s a practical way to create breathing room in the budget,” said Sutherland.

“We also found that those in their thirties and forties were the most likely age group to reduce their repayments – perhaps not surprising, given many in this cohort may be juggling school-aged kids and high household costs.”

The RBA hands down its July monetary policy decision today (8 July). CBA, along with the rest of the majors and most other economists, is predicting a rate cut.

“With underlying inflation now back in the target band and growing downside risks, we expect the RBA to deliver 25 bp rate cuts in July and August to bring the cash rate down to 3.35 per cent,” said CBA.

If experts are anything to go by, a further 25-bp cut could see more mortgage holders take advantage of reduced rates and lower monthly home loan repayments to put some extra cash in their pockets.

[Related: Consumers prepare to leverage rate cut to boost finances]

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