Rate cuts are easing the nation’s mortgage stress, but grocery-bill pain grows

The number of Australians behind on their mortgage has fallen by more than a third in some parts of the country as interest rate cuts deliver relief to stretched households, but shoppers are continuing to struggle with ever-increasing energy and grocery prices.

With the Reserve Bank mulling a fourth interest rate cut this year at its early November meeting, data compiled by ratings agency Moody’s shows mortgage delinquency rates have fallen in almost every part of the country over the past year.

Just 1.45 per cent of home loans held in residential mortgage-backed securities were 30 days or more behind on repayments to May this year, down almost a quarter on the same period in 2024.

At that point, the official cash rate was 4.35 per cent. So far this year, the Reserve Bank has sliced official interest rates on three occasions to 3.6 per cent, delivering a $300-a-month repayment saving on a $600,000 mortgage.

Of the almost 90 regions tracked by Moody’s, delinquency rates fell in 79.

Some of the biggest falls have occurred in Newcastle, Sydney’s south-western suburbs, Perth’s north-east and north-west, the Barossa Valley in South Australia and Melbourne’s north-west.

Moody’s said lower interest rates were the prime driver in the fall in delinquency rates, which were now lower than in the period before the pandemic, when official interest rates were at 1.5 per cent.

“Mortgage delinquency rates, which have started to decline in most areas around Australia, are set to continue to go down over the next year as interest rate cuts make home loan repayments more affordable,” it said.

“However, pockets of weakness will remain in regions where housing market and employment conditions lag the rest of the country, with parts of Melbourne a notable area of risk.”

Melbourne’s western and north-western suburbs, despite falls in delinquency rates, remain above the national and Victorian averages. These areas have higher unemployment rates than other parts of Melbourne.

The fear of unemployment, after recent figures showed the nation’s jobless rate climbing to its highest level since the pandemic, is now feeding into consumer stress.

The NAB’s quarterly consumer sentiment survey, released on Wednesday, showed a rise in shopper stress after previously reaching a two-year low due to falling inflation.

Cost-of-living issues continue to be the main concern for shoppers, largely due to elevated electricity and grocery prices, but unemployment and job security is starting to emerge as a worry. More than a third of people surveyed expect the jobless rate to climb over the next year.

Almost three-quarters of people reported that prices for utilities and groceries had increased over the past three months, with most not expecting any respite over the year ahead.

NAB chief economist Sally Auld said that while consumer stress had risen, it was still below its long-term average.

She said that although Australian shoppers were still mindful about where they spent their money, with 28 per cent changing to less expensive options, some people were opening their wallets.

“Consumers were somewhat less restrained in the September quarter,” she said.

“This easing allowed households to spend more, though spending growth was concentrated in specific areas, suggesting a continued focus on value and convenience.”

The fall in interest rates this year has contributed to a sharp fall in consumer stress caused by mortgage repayments.

Whether borrowers get further relief at the Reserve Bank’s last two meetings of the year will largely be determined by next week’s September quarter inflation figures.

Commonwealth Bank economist Trent Saunders said those figures were likely to show headline inflation pushed to 3 per cent over the past months, while the closely watched underlying measure will remain steady at 2.7 per cent.

He said it was unlikely the Reserve would cut further until it had clear evidence that inflation was on its way to the midpoint of the bank’s 2-3 per cent target band.

But the September jobs report, which showed an unexpected rise in unemployment, could force the bank’s hand.

“The latest labour force data mean that the decision to hold or cut in November may not be clear-cut,” he said.

“Given the increase in unemployment in September, an unexpectedly soft September quarter inflation print could see the RBA cut in November.”

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