May rate relief boosts borrowers confidence and demand
Following the Reserve Bank of Australia's (RBA) second cash rate cut of 2025, industry experts have forecasted an improved market sentiment and continued price growth.
The Reserve Bank of Australia (RBA) has cut the cash rate by 25 basis points to 3.85 per cent, bringing it down to a level last seen in May 2023, and marking the first time since March 2020 where the cash rate has been cut twice in three meetings.
The decision comes after recent data from the Australian Bureau of Statistics (ABS) showed that trimmed mean annual inflation fell to 2.9 per cent during the March 2025 quarter, marking the first time in over three years that the measure fell into the RBA’s 2–3 per cent target band.
Data from Cotality showed that the April rate cut was most likely to benefit borrowers who would receive lower mortgage rates for home loans.
If the cash rate adjustment is passed on in full, the average variable rate for outstanding owner-occupier loans would fall to around 5.81 per cent, reducing repayments on a $750,000 loan by approximately $81 a month.
By offering relief to borrowers, research director at Cotality, Tim Lawless, said that the rate cut is also likely to lift consumer sentiment, which could lead to increased activity in the greater housing market.
“This combination of lower interest rates and improved sentiment is likely to support increased activity in the housing sector, given that there is generally a correlation between consumer sentiment and home sales volumes,” he said.
Lawless noted that the rate cut could also help to maintain the upward trajectory of housing prices seen in recent months, by extending the broad-based recovery in values that began after the earlier February rate cut.
Nevertheless, Lawless said that the current economic climate suggests that he does not expect the April rate cut to drive a “significant acceleration in capital gains”.
“Several factors continue to constrain price growth, including stretched affordability, cautious lending practices, and the reality that despite 50 basis points of easing, interest rates remain in restrictive territory,” he said.
Chief of research and economics at Domain, Dr Nicola Powell, said that the April rate cut and improvements to borrowing power could see both demand and house prices rise in markets such as Sydney and Melbourne.
“For first home buyers, this could be a double-edged sword – while the rate cut helps with affordability, it could also fuel more competition in what’s already a very tough market,” Powell said.
Powell highlighted the federal government’s recently expanded First Home Buyer scheme, stating that it could push prices higher for the lower end of the market and units due to more buyers vying for these properties.
As a result of the amount of buyers that will soon be entering the market, Powell called on the government to be mindful of how policy could further undermine housing affordability.
“The challenge for policymakers will be finding the sweet spot between boosting growth and making sure housing doesn’t become even more out of reach for first home buyers,” she said.
CEO of the Real Estate Institute of Queensland, Antonia Mercorella, said the rate cut would help provide relief for borrowers in the Queensland market.
Mercorella noted that the cut could significantly increase borrowing capacity, with single-income buyers being able to afford around $20,000 more, and a dual-income household with two children gaining approximately $30,000.
“An additional rate cut is a welcome reprieve for home owners, buyers and investors. It provides breathing space for mortgage holders and encourages more Queenslanders to enter the property market,” she said.
Alongside offering relief to borrowers, Mercorella said that the April rate cut would also help to revive investor sentiment in the Queensland market.
“Investor sentiment, previously dampened by high borrowing costs, is also expected to be further bolstered by this second cash rate cut and the prospect of more to come,” she said.
Mercorella also highlighted Queensland’s currently elevated levels of population growth, and noted that the April rate would serve as “much-needed stimulus for new housing supply”, particularly ahead of the upcoming Brisbane 2032 Olympic Games.
“With the Brisbane 2032 Olympics Games on the horizon, stimulating housing supply and infrastructure investment has never been more vital to ensuring the state is well-prepared to meet future needs – especially when the spotlight turns to Brisbane,” Mercorella said.
Even though Mecorella acknowledged that the second rate cut would benefit Queensland’s housing market, she said that the relief must be complemented by “longer-term housing policy action, particularly on the supply side”.
“Unless all levels of government take urgent action to boost new housing stock, any affordability gains from lower rates will be undermined by persistent undersupply,” she said.
Knight Frank’s chief economist, Ben Burston, said that the second interest rate cut would help to drive further growth for commercial property markets across the nation, amid increasing economic uncertainty around a possible trade war between the US and China.
“The cut illustrates that the RBA has shifted the focus of policy to supporting growth, which has become more important since their last meeting in early April given downside risks to the global outlook,” Burston concluded.