What falling interest rates will mean for the property market?

Many economists expect the RBA will cut the official cash rate by 0.25 percentage points from its decade high of 4.35 per cent on Tuesday 18th February.

Rate cuts could boost buyer sentiment and activity but won’t make it much easier to afford a home.

High interest rates have reduced borrowing power and affordability, increasing pressure on mortgage holders as repayments surged.

Despite rate hikes, house prices declined less than expected and even rose in some areas, defying market pressures.

What Would a Rate Cut Mean for Mortgage Repayments?

A 0.25 percentage points rate cut could provide relief for mortgage holders. According to Canstar’s modelling:

• A $500,000 mortgage would see repayments drop by $77 per month.
• A $1 million mortgage would see a reduction of $154 per month.

Even a small rate cut can ease financial pressure, improving affordability for homeowners and buyers.

What Would a Rate Cut Mean for Borrowing Capacity?

A 25 basis point rate cut could slightly boost borrowing power for home buyers. Canstar’s modelling shows:

• A single person earning the national average salary (~$100,000) could borrow $12,000 more, increasing their maximum loan from $534,200 to $546,200.
• A couple where both earn the average wage would see their borrowing capacity rise by $23,100, from $1,029,700 to $1,052,800.

What Would a Rate Cut Mean for House Prices?

According to CoreLogic modelling, a 1 percentage point rate cut could drive a 6.1% rise in dwelling values nationwide. However, the impact would vary across cities:

• Sydney: +11.4% (strong rebound)
• Melbourne: +9.2% (strong rebound)
• Brisbane: +1.9% (moderate growth)
• Perth: -0.4% (minimal impact)

AMP chief economist Dr Shane Oliver said he did not expect house prices to rise sharply in response to cash rate cuts, but did expect prices to grow more in weak markets like Sydney and Melbourne.