As the Reserve Bank of Australia (RBA) signals potential interest rate cuts, hopeful home buyers are gearing up by securing financing in larger numbers. However, while lower rates will boost buyer sentiment, they may not unleash a massive surge in demand—at least not immediately.
Mortgage Applications on the Rise, But No Floodgate of Demand
Recent data from Equifax shows a 2.7% increase in mortgage applications over the past three months, indicating growing confidence in the housing market. However, industry experts caution that while lower rates will support affordability, they won’t necessarily lead to a sudden boom in property transactions.
Mark Bouris, executive chairman of Yellow Brick Road Home Loans, emphasizes that despite the anticipated reduction in borrowing costs, many buyers remain constrained by rising living expenses. “A $60 reduction on a monthly payment won’t necessarily offset higher costs of living,” he says.
Similarly, AMP Chief Economist Shane Oliver notes that housing affordability remains a challenge, despite expectations of a rate cut. Borrowing capacity is still lower than in previous rate-cutting cycles, which may temper any immediate surge in buyer activity.
Investor Interest Picking Up, But Market Barriers Remain
According to the Australian Bureau of Statistics (ABS), total lending rose 7.2% in Q4 2024, driven largely by a 13.2% increase in investor loans. Investors like Melbourne-based Pascal Butler are positioning themselves for potential market growth, betting that lower rates will boost property values over time.
“We were able to buy a good property for a reasonable price in an area close to the CBD because fewer buyers were competing,” Butler says. “But I think it will be harder to find those opportunities once rates drop and more buyers enter the market.”
However, affordability remains a pressing issue. House prices have surged 38% nationally since the pandemic, pushing median home values to eight times the average income—the highest level since 2022. A recent ANZ study found that only 10% of the country’s housing market is affordable for middle-income households, with just half of all properties accessible to top-earning households.
The Path Forward: Gradual Market Recovery Expected
Tim Lawless, CoreLogic’s research director, explains that today’s property market differs significantly from previous rate-cut cycles. Stricter lending policies, lower borrowing power, and affordability challenges will continue to shape buyer behavior.
“In previous rate-cutting environments, we saw an immediate boom in activity,” Lawless says. “But today, the barriers to market entry—affordability, serviceability, and lender caution—remain significant.”
Arjun Paliwal, head of research at InvestorKit, predicts a slow and steady build-up in demand, rather than a sudden surge. He believes the first wave of buyers will be those who already have financial capacity, while others will wait for further rate cuts before re-entering the market.
Matt Lewison, CEO of OpenCorp, agrees: “A rate cut might improve borrowing capacity, but it doesn’t mean 30,000 new buyers will flood the market overnight. Typically, it takes three to six months for price movements to trigger a broader response.”
What This Means for Home Buyers and Investors
For those looking to buy property, now is the time to review financial strategies, assess borrowing capacity, and prepare for future opportunities. Buyers who position themselves early—by securing pre-approvals and working with financial advisors—will have an advantage in a competitive market.
How Boa & Co. Can Help
At Boa & Co. Chartered Accountants, we help home buyers, investors, and SMSF trustees navigate property investments with expert tax planning, structuring, and financial advisory services. Whether you’re preparing to buy your first home, expand your investment portfolio, or optimize your borrowing strategy, our team is here to guide you.