The latest 25bp rate cut from the Reserve Bank (RBA) will improve borrowing capacity and boost market confidence, but affordability constraints are expected to keep a lid on price growth, according to Cotality.
The cut, which brings the official cash rate down to 3.6% from 3.85%, was unanimously agreed by the RBA board, citing moderating inflation pressures, a still-tight labour market, and easing global risks. It follows earlier cuts in February and May, with many lenders now expected to pass on the reduction in full.
The cut marks the third reduction in what was anticipated to be a gradual and cautious easing cycle. It follows a surprise hold in July, when the RBA board adopted a “wait and see” approach on inflation and the labour market.
Since the July meeting, core inflation has fallen to 2.7% – the lowest in three and a half years – while the unemployment rate has risen to 4.3%, the highest since November 2021. Headline CPI has also eased to 2.1%, firmly within the RBA’s target range, helping pave the way for the recent decision.
Cotality Australia research director Tim Lawless (pictured) said the rate cut was a net positive for the housing market.
“The rate cut is a net positive for housing markets, supporting demand through increased borrowing capacity and loan serviceability,” Lawless said, adding it is “likely to provide a boost to confidence.”
Earlier cuts have already helped drive a broad-based positive trend in housing values.
Market commentators including the Finance Brokers Association of Australia, Mortgage Choice, and the MFAA said the latest move will lift borrowing capacity and improve mortgage serviceability, with savings of around $100-$120 a month for many borrowers.
If lenders pass on the cut in full, the average variable mortgage rate is expected to fall to around 5.5%, saving roughly $120 per month on a $750,000 home loan. Compared with January, repayments on the same loan amount are about $370 lower per month.
For borrowers with average loan sizes around $600,000–$660,000, savings will range between $100 and $105 a month, or $1,200+ annually, assuming full pass-through by lenders.
Lawless cautioned that while rates are easing, they remain elevated.
“Although rates are coming down, they are doing so from a high base, and monetary policy settings remain in restrictive territory,” Lawless said.
Even if the cash rate falls by another 50bps to 3.1%, it would only be near neutral levels. Prior to the pandemic, the decade average was just 2.55%.
For prospective buyers, lower borrowing costs may draw more entrants into the market and boost transactions. However, high and rising prices, deposit hurdles, and ongoing cost-of-living pressures continue to limit purchasing power for first-home buyers.
REA Group’s Eleanor Creagh warned that while buyer confidence and capacity will improve, affordability remains “severely constrained” and housing undersupply continues to exert upward pressure on prices.
Lawless said the rate drop comes amid low supply, which should support a positive market response.
“However, stretched housing affordability and prudent lending standards are likely to temper the upswing,” he said.
Industry executives including Mark Haron (Connective) and Barry Saoud (Pepper Money) said the cut will add psychological as well as financial relief, help sustain buyer momentum, and create opportunities for brokers to guide clients through changing lender responses.
There are only three RBA meetings left this year – Sept. 30, Nov. 4, and Dec. 9. Futures market pricing indicates a cash rate of 3.2% by year’s end and 3.1% by March 2026, suggesting one or two more cuts in the next seven months.
Another reduction could further lift housing demand, though affordability constraints are likely to keep any price gains in check.
MFAA’s Anja Pannek said the decision will encourage more Australians – from first-home buyers to investors – to seek broker advice to enter the market or refinance, underscoring the industry’s role in the current rate cycle.
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