Rate cut will save 65,000 households

A half-percent cut in interest rates will take 65,000 households out of mortgage stress, according to research.

Economists believe a 25 basis-point cut by the Reserve Bank of Australia (RBA) is guaranteed next month, while the prospect of a 50 basis-point cut is becoming more likely as data suggests the economy is slowing quickly.

According to figures from the Housing Industry Association (HIA), a 50 basis-point reduction in rates would save a first home buyer $101 per month on a typical first home mortgage. Such a cut would also take 65,000 households out of mortgage stress. Mortgage stress is defined by a household paying more than 30 percent of its income on home loan repayments.

"There is now ample evidence confirming that the economy is slowing, the time is right for a drop in official interest rates before the economy stalls," said Chris Lamont, HIA chief executive, policy.

According to HIA, mortgage stress is at its worst in Sydney with nearly 226,000 households paying more than 30 percent of their income on home loan repayments? Melburnians are the second most stressed with 159,000 households, while regional NSW is third.

While mortgage stress is least acute in the Northern Territory, where 17.6 percent of households are in stress, Tasmania is the least-stressed state, with 22.3 percent of households in stress.

A 50 basis-point cut would shave $64 per month from the average Australian mortgage, but with some economists predicting up to 1 percent of cuts by early next year, households look to be in for some well-deserved relief.

Meanwhile, concerns that retail banks may not pass on RBA rate cuts were partly alleviated this week as NAB confirmed it is ready to pass on any cuts to the cash rate, to its home loan customers.

None of the other banks are yet to confirm they will pass on any cuts. Banks have consistently cited higher funding costs as their reason for jacking up rates above changes made by the RBA but prices in the short-term money market — which are one source the banks use to fund their own lending — have come down in recent weeks.