In late May, the RBA cut interest rates to 3.85 per cent, marking the first time the cash rate has been below 4 per cent in recent years. This momentous slash is the second cut of the year, aiming to provide relief to home loan borrowers. This comes after the RBA announced 13 hikes between May 2022 and November 2023 to manage inflation post-COVID.
The cut also comes after recent geopolitical issues, with US President Donald Trump imposing various tariffs and sparking global trade disputes. Even so, the RBA has stated that they are feeling “a little more comfortable, that things are going in the right direction”, with inflation data from Q1 2025 indicating that inflation is returning to the ‘target band’.
While there’s an overwhelming feeling of relief and optimism following the interest rate cut, there are still many questions about what the future holds. So let us provide some more clarity.
What does the interest rate cut mean for property developers?
If there’s anything we know for sure, it’s that the future of the real estate landscape is difficult to predict. With that being said, we can make a few educated guesses. Typically, lower interest rates make it easier to finance new projects as the borrowing costs are lower. Demand from property investors and owners may also rise, as they search for more stock in desirable areas. However, construction costs may continue to rise, particularly in popular suburbs or cities, if we see an upward trend in new developments.
What does the interest rate cut mean for property investors?
Similarly to property developers, the landscape is looking relatively fruitful. Interest rate cuts typically increase investors’ borrowing power and potential for capital growth. However, investors should be wary of overpaying as interest rate cuts can drive demand in desirable areas, increasing prices as prospective owners worry about missing out.
What does the interest rate cut mean for existing homeowners?
For current owner-occupiers, a rate cut can offer welcome relief. Lower interest rates typically reduce monthly mortgage repayments and may improve household cash flow. It’s also an opportunity to refinance under more favourable terms. However, homeowners should be mindful that interest rate cuts can drive up buyer demand, especially in sought-after suburbs, potentially inflating property values and competition for upgrades or new purchases.
Are there more interest rate cuts on the horizon?
Many economists predict that more interest rate cuts are on the horizon in 2025. AMP Chief Economist, Shane Elliot spoke on the matter, stating “We expect the RBA to cut again in August, November, and February next year taking the cash rate to 3.1 per cent. There is now close to a 50 per cent probability of another cut as early as July.”
He also shared that the RBA’s language suggested it was “leaving the door wide open” for further rate cuts, without rush “unless the tariff threat escalates.”
Should I adjust my investment strategy in response to the rate cut?
You should always consult your advisor, mortgage broker or legal professional for investment advice. With that being said, there are some trends we can highlight. Broadly speaking, investors and developers can refocus on owner-occupier and rental stock as the demand for housing continues to grow. Additionally, it’s important to consider construction and oversupply risks, and accurate location targeting when embarking on a new development or investment.
Disclaimer: This guide is intended for informational purposes only and should not be construed as professional advice. For specific advice, consult with a legal professional.
