‘Year of cuts’ underway as RBA chops rates to lowest since 2023

The stage is set for a massive shake up in property market competition with the Reserve Bank confirming the second cash rate cut of the year today.

Another 0.25% has been knocked off the cash rate in the bank’s first decision since the 2025 federal election.

The new rate of 3.85% is the lowest Australians have experienced in more than two years and is likely to push home prices, borrowing capacities and buyer confidence up. 

Major savings are now ahead for mortgage holders, with the majority expected to save more than $100 a week if and when banks and lenders pass on the cut.

Mortgage Choice has calculated the savings Aussies with various mortgage sizes can expect, assuming a current mortgage rate for new borrowers of 6.01%.

REA Group senior economist Eleanor Creagh said today’s cut offers more relief for buyers after last month’s decision to hold the cash rate but warned there are still concerns to consider.

“Affordability remains a challenge and sustained affordability improvements will depend on further cash rate reductions over time,” she explained. “At the same time, population growth and a persistent undersupply of new housing continue to underpin prices.”

House prices climbing … slowly

The average new home loan size for owner-occupiers in the March quarter was $659,922, while PropTrack data shows the median home price in Australia is now $805,000.

While home values hit record highs in April with prices rising across every capital city, the growth is slower than what was seen in the market in the first three months of the year.

The Home Price Index for April showed Adelaide and Melbourne drove the most price growth in the last month, with homes in the cities siting at a median price of $804,000 and $781,000 respectively.

While Sydney, Canberra and Brisbane saw slightly slower growth over April, they remain the nation’s most expensive capitals to buy in.

Despite the tide turning on inflation, affordability concerns have continued to dampen the market, which had a slight downturn after 23 months’ growth at the end of last year.

Tariff woes from the US government have also fuelled anxiety among buyers and sellers recently, though sentiment is likely to bounce back somewhat in the same way it did following the February rate cut.

Despite affordability constrains, Ms Creagh said she expected prices will keep lifting off the back of the RBA’s latest decision.

“The rate of growth is likely to be more modest compared to recent years,” she said. “The trade tensions and volatility in global markets have escalated, reinforcing the need for caution and flexibility in setting policy.”

Calls for reassurance

Metricon chief executive Brad Duggan agreed property seekers in particular now need reassurance from the RBA as we move towards the middle of the year.

“What I want from the Reserve Bank governor is some positive sentiment about how robust the Australian economy is,” he told realestate.com.au. “It’s not just the cut that is important, it’s the messaging around the cut that’s critical.

“The rate cut in February was combined with some pretty negative commentary, and it really didn’t result in any change in land sales and new house contracts.”

Mr Duggan added there are “a lot of good things to talk about in the economy” including the return of core inflation to within the RBA’s 2-3% target band, as well as record low employment.

“For people to feel secure and take the leap, this rate cut is not going to deliver the full outcome we are looking for, which is to inspire people to go out and build a home,” he added. “This interest rate cut gives people confidence from a financial point of view, but they still need confidence in the build journey.”

Mr Duggan says he confidently expects three more rate cuts before the end of the year.

“If they are delivered over a period of time, and they’re combined with positive sentiment about the market, it will result in a significant increase in new people deciding to build new homes.”

Rate cut cycle underway

This second rate cut for the year is a promising, albeit later than expected start to the year once dubbed “the year of cuts”.

Australia’s largest lender Commonwealth Bank is anticipating further cuts to the cash in August and November to bring the end of year cash rate to 3.35%. This would be the lowest rate since February 2023.

ANZ updated its rate cut forecast off the back of the tariff announcements and is also predicting two more rate cuts for 2025, aligned with Westpac expectations.

National Australia Bank – the only big four bank to have predicted a double cut today – is retaining its bullish anticipation for cuts in July, August, November and February 2026.

The RBA board will make another decision on the cash rate until next financial year, with its next meeting scheduled for 8 July.

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