Falling oil prices better than a rate cut for mortgage holders

by Julia Corderoy02 Feb 2015
A global ratings agency says Australian households would reap more savings from the recent drop in petrol prices than from an official interest rate cut of 25bp.

A report by Fitch Ratings reveals the average Australian household is saving $61.38 a month as a result of falling oil prices, based on average household fuel consumption. This is equivalent to a 35bp reduction in the Standard Variable Rate (SVR) on the average mortgage balance of $210,625.

However, households with an above average mortgage debt would be better off with a rate cut. According to the report, the average petrol price savings are only equivalent to a 15bp rate cut on a $500,000 mortgage.

The ratings agency does warn that oil prices are much more volatile than interest rates, so savings can be swallowed quickly when oil prices head north again. At the very least, the report says, the temporary savings can partially offset the negative impact on mortgage delinquencies from Christmas spending.