Borrowers hoping for some respite from mortgage pressure are hoping that 2025 will give them a chance to breathe a sigh of financial relief.

The promise of lower home loan rates around the corner has mortgaged homeowners looking forward to leaving 2024 behind them.

Commentators thought that interest rates would have had a haircut by now. Or at least a trim. But as 2024 has progressed, the decision to introduce rate cuts has been pushed back again and again.

The Reserve Bank of Australia (RBA) left the cash rate unchanged in this week, keeping it at 4.35% in a move that has fuelled the fire for a rate cut in February next year.

The RBA’s statement on monetary policy states that while headline inflation has fallen, underlying inflation is still too high. Therefore, the cash rate will stay restrictive until the Board is confident that inflation is moving sustainably to the middle of its 2-3% target range.

Finder head of consumer research Graham Cooke says: “Even though inflation has hit the RBA’s target window, this doesn’t trigger the RBA to automatically start cutting rates, which will disappoint homeowners.

“With a record high 47% of borrowers struggling to make their repayments in October, thousands will be forced to cut back on spending in other areas.”

Mortgaged homeowners are pinning their hopes on multiple rate cuts, which are predicted to start hitting in 2025. It’s welcome news for the more than 1.6 million mortgage holders at risk of mortgage stress. The good news is that rate cuts will eventually come, sooner rather than later.

Major banks and economists forecasts vary, though REA Group senior economist Eleanor Creagh predicts interest rates will begin to move lower from as early as February.

“As inflation trends downward, moving into the RBA target inflation range of 2-3% will be the sign that the RBA needs to finally begin cutting interest rates,”  Ms Creagh told Mortgage Choice.

Getting the best deal

Now, the million dollar question for homeowners contemplating how to get the best deal as rates fall is whether fixed or variable rates present the best value.

“With most expecting rate cuts in 2025, locking in a fixed rate might be less appealing if you anticipate rates will fall. Variable rates might be more advantageous as they would decrease as the cash rate moves lower. However, fixed rates offer certainty which some mortgage holders value,” Ms Creagh says.

REA Group senior economist Eleanor Creagh says there is hope on the horizon for mortgage holders in 2025. Picture: Supplied

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Variable rates have remained stable, currently hovering around the low 6%. Though some finance specialists able to secure rates just below that.

Equilibria Finance managing director Anthony Landahl adds: “With inflation sitting where it is and this rightly being the main focus of the RBA, I can’t see rates changing in the next six months, and as such, see variable rates pretty much remaining as they are.”

“We are seeing some buyers sitting on their hands waiting for a rate cut to then review their purchasing capacity and then looking to enter the market and have more comfort around their repayments.”

On the other hand, fixed rates are currently a mixed bag, Landahl says.

“Most one year fixed are above current variable rates, however we’re seeing some movement on particularly with the two and three year fixed rates as providers try and lock in some clients.

“Not a lot of people are seeing value in fixing at the moment. As most of the second and third year fixed rates are between one and two interest rate cuts, so clients aren’t really seeing value in this.

The Reserve Bank will hold its next meeting in December before it resumes for 2025 in February. Picture: Getty

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“Most of those fixing are doing so to just give them cash flow certainty with the understanding the fixed rate may ultimately be above the variable in a few years’ time.”

Stressful times

Meanwhile, a Mortgage and Finance Association of Australia (MFAA) survey of mortgage brokers asked for the perspectives on borrowers’ ability to refinance and the prevalence of mortgage stress.

Challenges around refinancing are also prevalent.

“Serviceability continues to be the number one challenge for home loan borrowers looking to refinance. This is the additional 3% interest rate lenders add to a home loan rate to assess if a borrower can service their loan,” MFAA chief executive Anja Pannek says.

In its last survey, 68% of mortgage brokers identified serviceability as the main reason clients were unable to refinance in the last six months, compared to over 80% previously. Borrowers in these circumstances being unable to refinance are referred to as ‘mortgage prisoners’.

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“Whilst still elevated, we’ve also seen a reduction in the percentage of mortgage brokers reporting they have clients who are mortgage prisoners in August 2024 compared to our previous surveys,” Pannek says.

Ready to pounce

Meanwhile, resolute Australians are contemplating how they can take the power back. Many are weighing up their next financial steps, from refinancing to purchasing property.

A Mozo survey found that 39% of consumers are waiting for rates to drop before purchasing a property, while 11% expressed caution about locking in a mortgage at the current high rates. Meanwhile, 6% are anticipating better financial conditions with rate cuts. 

While it’s great to be cautious, sometimes opportunity doesn’t wait for rate cuts. Instead, be prepared financially and aware of the rates on offer can give you the best chance to move quickly if the right property comes along, personal finance expert Rachel Wastell says.

“Timing the market is hard, and unfortunately, you don’t want to look back wishing you’d back your move sooner,” Wastell adds.

“For some, waiting for lower rates might feel like a safe bet, but the stakes could be higher than they realise. As Mozo’s research shows, 7% of buyers feel that waiting could actually backfire, potentially resulting in higher property prices once rates do drop and buyer demand spikes.”