Interest Rate Cut: What Does It Actually Mean and Where to From Here?

24th February 2025

Finance & Budgeting Pre-Construction News & Industry Insights

This article breaks down how the latest interest rate cut affects home buyers and investors, from lower repayments to increased borrowing power. Learn what it means for you and what steps to take next.

Interest Rate Cut: What Does It Actually Mean and Where to From Here?

Interest rate cuts are always a hot topic in the world of finance and home ownership. But what does a recent interest rate cut actually mean for home buyers and investors? In this episode of the Home Building Hub podcast, Colin Bischof and Darren Brennan sit down with Steve Matsoukas, Director of Loan Gallery, and Luke Burruto, Sales & Business Development Manager of Loan Gallery, to break down the impact of the latest rate cut.

What Does an Interest Rate Cut Mean for Home Buyers?

The recent interest rate cut brings two key financial changes for home buyers:

• Lower repayments: If you have a mortgage, a rate cut generally means lower monthly repayments. For the average Australian mortgage (around $640,000), this reduction translates to a saving of just over $100 per month.
• Increased borrowing capacity: Depending on the lender, the rate cut could increase borrowing capacity by $10,000 to $35,000, giving buyers greater flexibility when purchasing a home.

When Will Banks Apply the Rate Cut?

• The major banks have announced that they will apply the rate cut by February 28th, 2025.
• Some smaller lenders have already passed on the full 0.25% reduction to customers.
• Others are only applying a partial reduction, which means it's crucial for borrowers to check if they are receiving the full benefit.

Consumer Confidence and Market Sentiment

One of the biggest impacts of an interest rate cut is on consumer confidence. A rate cut signals a shift towards a cycle of lower rates, making home buyers and investors more optimistic about entering the market.

• Many people have been waiting for the first rate cut to make a move.
• The Reserve Bank of Australia (RBA) has hinted that future cuts may be gradual, so buyers shouldn't expect a rapid drop in rates.
• The effect on property markets varies by state. In Victoria, for example, the property market has been subdued, creating buying opportunities.

Opportunities for Buyers and Investors

According to our experts, now is a prime opportunity for buyers:

• For first-home buyers: The increased borrowing capacity could be the difference between affording a home or missing out.
• For upgraders: A little extra borrowing power might mean upgrading from a three-bedroom to a four-bedroom home or adding premium features.
• For investors: Victoria, in particular, presents a strong value opportunity, with properties offering good long-term potential.

What Should Buyers Do Next?

If you're considering buying or refinancing, here’s what you should do:

1. Talk to a mortgage broker – A professional can help you understand how much you can borrow and whether you’re getting the best deal.
2. Check if your lender is passing on the full rate cut – If not, consider refinancing.
3. Assess your financial situation – Even a $100 per month reduction can provide more financial breathing room or improve your borrowing capacity.
4. Start the buying process now – Property prices may start to increase as more buyers enter the market.

Key Takeaways

• The interest rate cut means lower repayments and higher borrowing power.
• Most major banks will apply the cut by February 28th.
• Consumer confidence is rising, making this an ideal time to consider purchasing property.
• Victoria offers particularly strong value for buyers and investors.
• It’s crucial to review your home loan to ensure you’re getting the full benefit of the rate cut.

For expert mortgage advice, visit Loan Gallery or speak with a broker about your options. To listen to the full episode, visit Episode 86 - Interest Rate Cut: What does it actually mean and where to from here?.

FAQ

Q: Will there be more interest rate cuts in the near future? A: While nothing is guaranteed, experts suggest that the RBA is moving into a cycle of rate reductions, though they will likely be gradual.

Q: Should I refinance my home loan now? A: If your bank isn’t passing on the full rate cut, it’s worth speaking to a broker about refinancing options.

Q: How does this affect first-home buyers? A: A higher borrowing capacity might allow first-home buyers to finally enter the market.

About the Home Building Hub Podcast

The Home Building Hub podcast, hosted by industry experts Colin Bischof and Darren Brennan, is Australia’s premier resource for new home buyers. With weekly episodes featuring special guests, the podcast provides objective, high-quality insights into the home building process—completely free and without sales pitches. From understanding financing options to navigating the complexities of building a new home, each episode is packed with actionable advice and tips.

Explore more episodes at www.homebuildinghub.com.au and join our growing community of informed home buyers.

Disclaimer

Whilst we’re all about providing value to you, this article should not be considered as legal or financial advice. It contains general information only and is based on the content discussed during the podcast episode. This information is relevant to the episode’s release date and may not be applicable at the time of reading. Always seek independent professional advice tailored to your personal situation before making any legal or financial decisions.