Tuesday’s decision by the Reserve Bank of Australia (RBA) to maintain the target cash rate at 4.35 per cent marks 12 months since rates last changed.

Based on recent lending reports from major Australian banks, Tindall estimates 90 per cent of mortgage holders are on a variable rate, meaning their repayments are tied to the cash rate.

Around 90 per cent of mortgages are on variable rates, accounting for over 50 billion dollars in home loans in the most recent data set.

“There’s not many people opting for a fixed rate at the current prices. The ABS (Australian Bureau of Statistics) data shows us that, and the proportion of new and refinance loans opting for a fixed rate in September was 2.6 per cent,” she said.

“It’s focused on underlying inflation which is still too high by the RBA’s own measures,” she said.

What’s the difference between underlying and headline inflation?

University of New South Wales economics professor Kevin Fox explained that underlying inflation is a more prudent way of predicting cash rate changes.

“If mortgage repayments are included in the CPI while inflation goes up, and so the Reserve Bank increases the inflation rate, that’ll increase mortgage repayments and that’ll further make inflation go up so that the ABS would be chasing their tail,” he said.

Living costs on the rise, but not by much

Living costs for the remaining household types rose by the smallest amount since 2020, according to the latest data from the ABS on Wednesday.

“While the Reserve Bank of Australia’s cash rate remained unchanged this quarter, mortgage interest charges still rose due to the continued rollover of some expired fixed-rate mortgages to higher variable rate mortgages and higher mortgage debt levels,” she said.

What will the RBA do next?

“Underlying inflation is expected to ease slowly as demand in the economy moves back into line with supply,” it said.

The target cash rate of 4.35 per cent is the highest it has been since 2011.

“While headline inflation is expected to be in the target range in the first half of next year, part of this is due to temporary cost-of-living relief.”

And while the cost-of-living pressures are mounting on mortgage holders, the future remains unknown.

The RBA will hold its final meeting of the year in December.