For Australian mortgage holders eagerly anticipating relief from the Reserve Bank of Australia (RBA), there’s been a shift in the narrative.
ANZ has just joined Westpac and NAB in revising its cash rate forecast, now predicting the first rate cut will occur in May 2025, instead of February, and reducing the expected number of cuts in the cycle.
This means the bank expects the cash rate will settle at 3.85 per cent, instead of 4.10 per cent, by the end of next year.
Meanwhile, CBA stands alone, still forecasting a February 2025 rate cut and a total of four reductions.
In explaining its decision, the ANZ economics team has said its forecast for trimmed inflation to fall within the RBA’s target band by the February meeting is ‘no longer looking likely enough’ for a rate cut at the first meeting of 2025, however, it is not ruling it oout.
This adjustment from ANZ underscores a sobering reality for those with a mortgage: relief may not come as quickly or as significantly as many had hoped.
With only two rate cuts predicted by ANZ, homeowners with an average $600,000 loan could face over $1,400 in extra interest charges compared to scenarios involving more substantial rate reductions.
| Big four bank cash rate forecasts | ||
| First change (-0.25%) | No. cuts forecast | |
| ANZ | May 25 | 2 |
| CBA | Feb 25 | 4 |
| Westpac | May 25 | 4 |
| NAB | May 25 | 5 |
What this means for borrowers
If the RBA adopts the more conservative path suggested by ANZ, the average mortgage rate may drop only slightly—remaining just below 6%.
For homeowners already stretched by higher repayment costs, this limited rate relief might feel like a drop in the bucket.
The lowest available variable rates could still hover in the mid-5% range, well above the levels many had anticipated just a few months ago.
Here’s how it breaks down:
- Two rate cuts could reduce monthly repayments on a $600,000 loan to $3,811.
- Five rate cuts would bring those repayments down to $3,552—a difference of $259 per month.
| Impact of 2 vs 5 cash rate cuts on a $600k loan | ||
| No. of forecasted cuts in cycle | Monthly repayments – mid 26 | Interest paid – next 19 months |
| 2 x 0.25% cuts by Aug 25 | $3,811 | $56,622 |
| 5 x 0.25% cuts by June 2026 | $3,552 | $55,153 |
| Difference | $259 | $1,469 |
| Source: www.canstar.com.au – 29/11/2024. Calculations are estimates based on an owner-occupier paying principal and interest with $600,000 debt in Dec 2024 with 25 years remaining on the average owner-occupier variable rate of 6.34%. Assumes banks pass on cash rate cuts in full one month after the change. | ||
Potential average and lowest variable rates after 2 cash rate cuts
| Today | Estimated rates after 2 x 0.25% pt cuts | |
| Average owner-occupier variable rate | 6.34% | 5.84% |
| Lowest variable rate | 5.75% | 5.25% |
| Lowest investor variable rate | 5.94% | 5.44% |
|
Source: www.canstar.com.au. Assumes lenders pass on RBA cash rate cuts in full. Lowest variable rates exclude introductory rates and green loans. |
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This gap highlights the significant impact rate movements have on household budgets.
A changing landscape
This is a stark contrast to earlier optimism about a faster and deeper easing cycle.
Sally Tindall, Canstar’s Director of Data Insights, aptly noted:
“May is firming up to be a more realistic option for the timing of the first cash rate cut, but there is still every possibility it could be a lot later than this.”
With inflationary pressures persisting and global economic uncertainty, the RBA may find itself with limited flexibility to aggressively cut rates.
This cautionary stance reflects a broader acknowledgment that the “neutral cash rate” could settle higher than previously expected.
What Can You Do?
As we await clearer signals from the RBA, it’s crucial for borrowers to take matters into their own hands:
- Refinance proactively: Don’t wait for the RBA to ease your financial burden. Shop around for a better deal now. Some lenders are offering competitive rates in the 5% range for new borrowers.
- Compare and Negotiate: Use tools to monitor rates, compare products, and track market trends.
- Budget for Resilience: Prepare for the possibility of prolonged higher repayments. This might mean trimming discretionary spending or finding ways to boost household income.
The Big Picture
While rate cuts are likely on the horizon, they may arrive later and with less impact than many had hoped.
This underscores the importance of financial resilience and strategic planning.
Waiting passively for relief could cost you significantly in the long run.
