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The Reserve Bank of Australia (RBA) has cut the cash rate by 25 basis points, bringing it down from a 13-year high of 4.35 per cent to 4.10 per cent, boosting buyers confidence, affordability and borrowing capacity.
The cash rate decrease marks the first rate reduction over four years, following an aggressive rate hiking cycle aimed at curbing inflation.
The decision comes as inflationary pressures ease, with annualised six-month core inflation aligning with the RBA’s 2–3 per cent target range.
CoreLogic data showed the rate cut is forecast to provide modest relief for borrowers.
If passed on in full, the average mortgage rate for owner-occupier loans would decline from 6.32 per cent to 6.07 per cent.
While the immediate reduction in borrowing costs will be beneficial, CoreLogic research director Tim Lawless said the confidence boost from the rate cut could have a greater impact on the housing market.
CoreLogic data showed consumer sentiment has improved since mid-2024, as households anticipated the end of the rate-hiking cycle.
“Arguably the greater effect on housing markets will be the confidence injection received from the commencement of the rate cutting cycle,” Lawless said.
“Historically, there has been a clear relationship between changes in consumer sentiment and home purchasing activity,” he said.
Similarly, head of Victoria at Belle Property and Hockingstuart, Anthony Webb, believes the cash rate cut positively impacted buyer confidence.
“The RBA’s decision to cut the cash rate will boost confidence among buyers who have held off on purchasing over the past few years,” he said.
“While the rate cut provides some immediate reassurance, its effect on borrowing capacity will only become significant after multiple cuts.
“As a result, significant property price fluctuations will depend on how many additional reductions the RBA makes this year.”
Webb also noted that the rate cut was a strategic move amid the upcoming federal election, presenting a favourable opportunity for home sellers.
He said sellers might achieve strong outcomes by capitalising on the current market conditions.
The Real Estate Industry of Queensland’s chief executive officer, Antonia Mercorella, welcomed the RBA’s decision and the affordability it would bring to the market.
“With affordability top of mind for many Queenslanders, any measure that reduces borrowing costs is a welcomed development,” Mercorella said.
She noted that the cut could increase borrowing capacity, with single-income buyers potentially gaining over $7,900 and couples over $18,500.
“This cut will make it easier for prospective home buyers to service larger loans, boosting their borrowing power.”
Mercorella said major banks, including ANZ, CBA, NAB and Westpac, predict cumulative cuts between 50 and 100 basis points, driven by easing inflation.
“Rate cuts may help lift the private sector outlook which has seen weak GDP growth of 0.8 per cent and GDP capita fall by 1.5 per cent in the year to September quarter 2024,” she remarked.
“Although a single rate cut won’t solve all economic challenges, it demonstrates the RBA’s commitment to foster broader sustainable economic growth.”
Mercorella noted that while improving housing supply is key for long-term affordability, without addressing supply constraints, low interest rates may not significantly reduce home prices.
Leanne Pilkington, president of the Real Estate Institute of Australia, highlighted the cash rate cut’s affordability benefits.
“The 0.25-percentage-point cut would, if passed on in full, reduce repayments on a $600,000 mortgage by $100 a month,” she said.
Pilkington added that further rate cuts could continue to improve affordability in 2025.
“Affordability will also improve with the proportion of family income required to service their loan dropping by 1 percentage point for each cut in interest rates of 0.25 per cent, from the current historically high level of 48.6 per cent,” she said.
Knight Frank’s chief economist, Ben Burston, said the rate cut was a “turning point” for commercial properties as it shows the ending of the market’s devaluation cycle.
“After an extended tightening cycle, the move validates the shift in sentiment experienced in the second half of 2024 off the back of cuts from other central banks around the world and will help to restore confidence and liquidity throughout 2025,” Burston said.
“Past cycles have shown that the market responds positively to a shift in the stance of monetary policy, and investors will increasingly come to the view that the Australian market now represents good value with strong prospects for cyclical recovery and long-term growth, although the pace of recovery will differ for different locations and sectors.”
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