Investors return: How interest rate cuts are impacting different buyer segments

The property market is gearing up for a strong spring selling season on the back of a third interest cut, with the increased competition already nudging many first-home buyers out of the race.

Buyers are feeling more confident with lower interest rates boosting borrowing capacity. At the same time, households expect property prices will rise over the coming year.

That’s fuelling a fear of missing out (FOMO), and upgraders and investors seem to be flexing the hardest according to Victorian-based property buyer’s agent Cake Bakos.

“First-home buyers are certainly throwing their hats in the ring, but I’m seeing more scenarios where investors are nudging them out of the way unfortunately,” she said.

“2025 marks the year of returning investors in Melbourne, that’s for sure.”

PropTrack data shows that national home prices hit a new record high of $827,000 in July, following a rise of 0.3% over the month and 4.9% over the year.

Regional areas have outperformed their capital city counterparts in most states, up 0.4% over the month and 6.5% over the year. Capital city prices climbed 0.3% over July and are sitting 4.3% higher compared to a year ago.

Who rate cuts impact the most

While interest rate cuts directly impact borrowing capacity, Ms Bakos said a lot of people get things confused when they assume every buyer and market segment is impacted when rates are cut.

First-home buyers

Rate cuts are positive news for first-home buyers who tend to have higher loan-to-value ratios and are more sensitive to rate fluctuations, according to REA Group economic analyst Megan Lieu.

“For these particular buyers, the reduction of rates reflects an increase in borrowing capacity and an improvement in housing affordability. With lower loan rates, they are able to access a wider range of properties in the market,” Ms Lieu said.

Ms Bakos adds that a first-home buyer will also be restricted by their deposit size in relation to their ability to reach to a higher budget.

“Regardless of their loan serviceability capacity, if their deposit savings are tight, they will be capped at the same level as they were pre-rate cut,” Ms Bakos said.

Mid-market buyers

The impact of rate cuts is similar for buyers in the mid-market, in that it increases their purchasing power, improves affordability and opens a pool of properties within their financial reach, Ms Lieu said.

“Quite a few mid-market buyers tend to upgraders, so we may see more of these homeowners take advantage of lower rates to move in larger or better located properties,” she said.

It’s these buyers who are upgrading that are likely the most empowered buyers when rate cuts are applied, Ms Bakos said.

“They generally have a significant deposit from the sale of their former home, and it is upgraders who typically push the hardest to acquire the family home.”

Ms Bakos adds that investors generally have equity to lean on, and the longer that the investor has held other property (including their home), the higher the chance that they can stretch their deposit size with this equity as rates increase.

Luxury buyers

At the luxury end of the market, different factors drive activity for buyers, according to Ms Lieu.

For starters, high-end buyers are generally less sensitive to rate cuts, although shifts in interest rates can still influence sentiment among these buyers.

“Interestingly, what we see is that high-end markets are often the first to react when market conditions improve. Price growth has been higher in this segment since the start of the year.”

Meanwhile, downsizers and retirees are often unaffected by a rate cut.

“They often pay with cash savings as opposed to borrowed funds, or at least they may borrow very little,” Ms Bakos said.

Where to from here

Looking ahead, ANZ predicts that home prices will surge faster in the next year and a half on the back of multiple interest rate cuts.

In its newly released Australian Housing Outlook report, the big four bank predicts combined capital city home prices will increase by 5% by the end of this year and 5.8 per cent by the end of 2026.

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