First-home owner spends ‘entire monthly salary’ on mortgage after RBA decision

An Aussie mortgage holder is spending a "whole salary" on monthly repayments, despite both her and her partner working "well-paid" corporate jobs. The Melbourne woman is one of millions of borrowers anxiously waiting for interest rates to drop, after the Reserve Bank of Australia (RBA) held rates steady once again this week.

Kealey Nutt purchased her first property with her partner in Melbourne’s Chelsea in March 2020, with the couple settling on the two-bedroom unit the night before lockdown started. The 37-year-old told Yahoo Finance they were “very intentional” about buying a property they could afford that was within their means.

“At the time of settling, the mortgage payments were the same as what we’d previously paid in rent. But with interest rates up so high, we’re now paying the equivalent of an entire monthly salary for one of us,” Nutt said.

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The communications professional shared the couple’s mortgage repayments were originally about $1,700 a month but had now tripled to nearly $5,000 a month.

Nutt said her and her partner, who works in the public service, weren’t “rich” but had good paying jobs and no dependants or added debt like credit cards.

“If we’re struggling with it and we’re a double-income household on a rough ballpark of an average of $100,000 each … other people would be in a much worse situation which is scary,” she said.

“We are lucky that we don’t have more mouths to feed or more debt or a bigger house to heat, but it really does impact everybody. We’re super aware of our privilege and feel for those people who are less financially stable.”

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Mortgage repayments eat into salary

Mortgage stress is generally defined as when a homeowner is spending more than 30 per cent of their wage on their repayments. With interest rates sitting at a 12-year high, the number of Aussies above this threshold has been growing.

A poll of more than 7,500 Yahoo Finance readers revealed more than two-thirds of respondents (71 per cent) were spending more than 35 per cent of their salary on their mortgage repayments.

A touch over half of those surveyed (52 per cent) were spending more than 40 per cent of their wages.

Mortgage repayments have jumped by about $1,562 per month on a $600,000 loan since the central bank started hiking rates in May 2022, Canstar found, based on a 30-year loan.

Borrowers forced to make ‘adjustments’

The RBA estimates around 5 per cent of mortgage borrowers are spending more on their repayments and essential living expenses than they earn.

RBA governor Michele Bullock acknowledged the impact high interest rates were having on Aussies and said she knows some homeowners will be forced to sell their homes.

"We understand that there are some very difficult decisions going on here," she explained.

"We only have one instrument. It's the interest rate ... And I do understand that, distributionally, it affects people in different ways."

While Nutt and her partner aren’t in this difficult position, they have had to make changes to their spending and lifestyle to keep on top of their growing repayments and have dipped into their savings to cover unexpected expenses.

“There are a lot of other things that you have to consider that you can’t do, that you used to be able to do, or that you need to do differently because so much of that percentage of your income is gone,” she told Yahoo Finance.

Nutt said the couple were no longer socialising as much as they used to and were strict with their budgeting, including for essentials like food and petrol. They’ve also put their original plan to upgrade to a bigger home “on hold”.

“We have to be so much more conscious of the cash flow. We can’t just do things the way that we used to,” she said.

“It’s kind of stressful because you don’t want to feel like you are scrimping and questioning choices but we kind of have to now.”

Nutt said she believes the "human experience impact" needs to be better balanced against the economic impact of rate hikes.

When will the RBA cut interest rates?

Three of the Big Four banks do not expect any rate cuts before the end of the year.

Only Commonwealth Bank (CBA) has forecast a rate cut in December, revising it from November last week, following steady employment figures and the RBA board’s “hawkish rhetoric”.

Westpac and ANZ expect a February cut, while NAB has forecast one in May 2025.

CBA thinks there will be five 0.25 per cent rate cuts by the end of 2025, taking the cash rate down to 3.10 per cent.

Canstar research found the first rate cut alone could bring $92 in monthly repayment relief for borrowers with a $600,000 loan, or as much as $153 for borrowers with a $1 million mortgage, with 25 years remaining.

A total of five rate cuts could see monthly repayments drop by $441 on a $600,000 loan and $736 per month on a $1 million loan.

Borrowers urged to fight for lower rate

With interest rate relief still a fair way away, Canstar data insights director Sally Tindall urged borrowers to “double dip” and get themselves a rate cut today.

“If you’re frustrated by the lack of action from the RBA, don’t get mad, get moving," Tindall said.

“Haggling with your lender is the easiest way to go about it, but don’t rule out the possibility of refinancing until you’ve run the numbers yourself.

“If you’ve let your mortgage rate go rouge over the last couple of years, you’ll be astounded at the savings you could make. In fact, you might fall off your chair."

Nutt said she had refinanced her mortgage to a bank that offered a lower interest rate and more loan flexibility.

“People should consider looking to see if they can get better value to take some relief off the situation,” she said.

If you're feeling overwhelmed and need help dealing with financial stress, you can contact free advice and counselling from the National Debt Helpline. You can call 1800 007 007 between 9.30am and 4.30pm Monday to Friday, or reach out to Mob Strong Debt Help on 1800 808 488.

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