New data from the Commonwealth Bank shows that only 10 per cent of eligible¹ home loan customers chose to reduce their mortgage direct debit repayments following the May interest rate cut.
Of those who chose to reduce their repayments, 39 per cent came from New South Wales, the largest group, ahead of Victoria with 31 per cent. Compared to other states, NSW customers were also somewhat more likely to adjust their repayments down, as a proportion of the group who were eligible to do so - with 13 per cent taking action.
Customers aged between 31 and 50 were the most likely to and represented the largest share of those who decided to reduce their repayments. There was also a higher percentage of direct debit changes among investment loans compared to those held by owner-occupiers.
This follows a similar trend after the February rate cut, when around 10 per cent of eligible customers had adjusted their repayments at the same point in time - eventually rising to 14 per cent before the May RBA decision. Notably, more customers were eligible to make changes after the May rate cut, yet the proportion who acted has remained steady.
Across the February and May rate cuts, the combined 0.50 per cent per annum rate reduction could have delivered savings of around $160 a month for those making principal and interest repayments on an average loan size of $500,000. 2
Speaking about the data ahead of the RBA cash rate decision on 8 July, Tess Sutherland, General Manager from the bank's Home Buying team said:
"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."
"We let customers know that they have the option to reduce their repayments and we've made the process quick and easy - done directly through the CommBank app and NetBank. The choice is entirely in their hands, allowing customers to decide how they want to manage their money."
"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."
"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," said Ms Sutherland.
The data also revealed that more than 98 per cent of customers who chose to adjust their home loan direct debit did so digitally via the CommBank app or NetBank in just minutes.
"We're committed to delivering Australia's leading digital banking experience - one that's flexible, secure and easy to use. It's great to see that around 98 per cent of our customers, who opted to reduce their direct debit, were able to do so in just minutes online," said Ms Sutherland.
1 Customers on a variable rate home loan who are currently paying more than their minimum repayment amount via direct debit.
2 Based on a <60% LVR principal and interest owner occupier 30-year home loan with a standard variable rate. Rates and figures for illustration only, your interest rate may differ. This guide is information only and should not be relied on as financial advice.
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Click here to download a video news release with Tess Sutherland, General Manager Home Buying.
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