Mozo Money Moves: Term deposit market in flux as inflation cools and mortgage stress intensifies

As we close out August and head into the spring property season, this week’s money moves reveals ongoing turbulence in the term deposit market with significant shifts in leading rates as inflation shows signs of easing, while mortgage stress continues to escalate for many Australians.

July’s CPI figures indicate a slight easing in inflation, which might give the RBA reason to pause on further rate hikes. However Mozo’s latest research underscores the persistent financial strain of previous rate hikes on mortgage holders, as a growing number of Aussies spend half their income on home loan repayments. 

Meanwhile, term deposit rate cuts are continuing to reshape the market, prompting savers to lock up their savings to benefit from leading rates before they drop any further.

CPI shows inflation is easing, instilling confidence in borrowers

This week, the Australian Bureau of Statistics (ABS) released the monthly consumer price indicator (CPI) for July, which is likely to have instilled a little more confidence in borrowers that the RBA’s next move will be a cut. Headline inflation eased slightly, rising 3.5% in the year to July down from 3.8% in the year to June and the underlying measure of inflation that excludes volatile items rose by 3.7% down from 4.0% in June. While this may not warrant a rate cut at their next meeting in September, it should give the central bank enough satisfaction to hold off on any potential rate hikes.

"The slowdown in inflation is a promising sign for borrowers feeling the pinch of higher rates and have been patiently waiting for a cut,” says Rachel Wastell, Mozo’s personal finance expert.

“While we might not see a rate cut next meeting, this easing trend should give the RBA some breathing room to hold steady, a  welcome relief for homeowners and buyers after recent commentary that another rate hike was on the way.”

The headline and underlying measure of annual inflation are easing, however the housing sector is one CPI basket item still proving difficult to tame, increasing at a faster pace than both overhead figures. Housing (overall) rose 4.0% year on year to July, down from 5.5% in June, as rental costs continue to rise and property prices remain elevated. 

Rent increased by 6.9%, slightly less than the 7.1% annual price rise recorded in June, due to ongoing tightness in capital city rental markets, and new dwelling prices rose 5.0%, down from 5.4% in the year to June. New dwelling prices have consistently risen by around 5.0% since August 2023, reflecting higher costs for labour and materials. The slowdown in overall housing costs was mainly due to the 5.1% drop in electricity prices, thanks to new government rebates.

Despite the CPI data showing housing is one of the driving forces behind sticky inflation, and the electricity rebates driving the overall inflation figure of the housing basket down, this segment does not include the rising cost of mortgage repayments. 

As such, this week the Mozo team decided to take a look at the impact this untracked price pressure was having on the disposable income of mortgage holders.

Mozo analysis: 1 in 5 spend half their income on mortgage

This week, Mozo also released new research^ that revealed the number of Aussies spending half their income on home loan repayments has grown by 35% since 2023, with some generations hurt more than others.

Mozo research* from this time last year showed 1 in 6 (16%) mortgage holders were having half their income wiped out by rising rates, but this has now jumped to 1 in 5 (22%). Mozo survey results showed that the cohort of Australian homeowners spending less than 20% of their income on mortgage repayments has dropped by 26% year on year, while those paying a higher percentage have grown in number. 

The Mozo data also reveals significant generational differences in coping with mortgage costs., The proportion of Aussies spending 40-60% of their income on their mortgage has more than doubled Gen Z from 11% to 22%, and for Millennials and Gen X has risen by 39% and 42% respectively. Unsurprisingly, Boomers are the only generation to buck the trend, with the cohort paying 40-60% dropping by 49% over the past 12 months.

“Earlier this year Mozo found that 2 in 5 Australians don’t know their home loan rate, so if your income is being wiped out by rising repayments, the first thing to do is check your rate. Then, compare it with others on the market to see if you can get a better deal.”

“If your mortgage rate starts with a 6 or 7, you might be able to reallocate some of your income to other rising expenses by switching to a rate starting with 5.”

Top Variable Rate Home Loans

Home Loan Insights

• Mozo spring property preview 2024: What’s in store for home buyers?
• New Mozo research reveals a 35% rise in the number of Australians spending half of their income on home loan repayments since the data was last collected in 2023. 
• Commonwealth Bank has cut interest rates across its fixed and variable rate home loans for new customers by up to 0.70% p.a, is this an indicator the RBA is about to cut?

TD cuts continue to roll in, Westpac the only Big four yet to move.

Term deposit rates have dropped rapidly since the beginning of August as expectations grow that the RBA's next move will be cut. Rates of 5.00% or more are becoming scarce, especially for terms longer than one year, where cuts have been more severe. Major banks like ANZ, Commonwealth Bank, and NAB have all reduced rates across various terms, with some rates dropping by up to 80 basis points. 

This week, term deposit rates continued on the August downward trend as lenders reduced rates across various terms by 10-40 bps.Great Southern Bank made 15-40 bps cuts across 5,6,8,9 and 11 months, as well as 1 and 2 year terms with its highest offer now 4.70% p.a. for 5, 8, 11 month terms. Macquarie made 15-25 bps cuts across 1-5 year terms, after cutting 4 and 9 month terms on the 8th, and its highest offer now 4.90% p.a. for 3 month terms. ME Bank also made cuts across 6month, 9 month and 1  year terms, albeit smaller at 10 bps, with its highest offer at 4.70% p.a. for 9 month and 1 year terms.

For instance, in the 5 year term deposit space, the rate leader table has shifted dramatically since the beginning of August. Rabobank, initially leading at 5.10%p.a. cut 50 bps of the leading rate to 4.60%p.a. and now sits second on the table. Judo Bank, now in first position, also cut 25 bps of its rate to drop to 4.60%p.a. 

Term Deposit Rate Leader Shakeup

From the end of July, we’ve seen significant shake up in the leading term deposit rates on offer for 1-5 year terms, as we mentioned in our last column, and this has continued into this week. with the 5 year leading term deposit rate shifting the most, dropping by 50 bps.

• 1 year terms: from 5.30% to 5.10%
• 2 year terms: from 5.00% to 4.80%
• 3 year terms:  from 5.00% to 4.75%
• 4 year terms: from 5.00% to 4.60%
• 5 year terms: from 5.10% to 4.60%

(Interest rates are per annum)

"As we continue to see significant drops in term deposit rates, it’s clear that the window for locking in top rates is closing fast,” says Wastell.

“Savers who want to secure a competitive term deposit rate should act quickly before further cuts take place, as it is clear the market is in flux.” 

5 Year TD Rates Shift

G&C Mutual cut 25 bps on 22 August and Macquarie cut 25 bps on 28 August, removing them from the top tables altogether and shifting Police bank and Heartland Bank into the rate leader top table, both offering a return of 4.10%p.a. 

P&N Bank is the only rate leader that hasn’t cut its 5 year rate in August.

Beginning of August

End of August

Savings Insights:

• If you’ve ever wondered how to juggle everyday expenses while still building up your savings, the 50/30/20 budget rule could be a simple yet effective answer.
• Choosing the right interest payment schedule for your term deposit can significantly impact your savings strategy, so should you get interest paid monthly or when it expires?
• Spring is here, and while you’re dusting off the cobwebs of winter, here's how you could save money with a spring clean of your insurance policies.

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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^Mozo.com.au commissioned a nationally representative survey of 2,129 Australians aged 18 years and over between 19 July and 5 August 2024

* Mozo commissioned a nationally representative survey of 2,141 Australians, aged 18 years and over, from 30th August to 11th September 2023 via Researchify.