How would a rate cut influence borrower behaviour?

With the Melbourne Cup Day rate decision set to be announced tomorrow afternoon (5 November), economists and markets have almost unanimously predicted that the Reserve Bank of Australia (RBA) will continue to hold the official cash rate at 4.35 per cent.

While predictions for the first rate cut in this current cycle have been pushed back as new economic data emerges (the earliest cut said to occur in February 2025), brokers have dusted off their crystal balls and explained how a rate cut will alter borrower behaviour.

Speaking to Broker Daily, director and mortgage broker at Sufficient Funds, Randy Araya-Bishop, said a rate cut would likely result in a shift toward more inquiries for home loans, more refinancing opportunities, and “potentially an uptick in investment property purchases as the lower rates could improve borrowing capacity for clients”.

Director and finance broker at Prosper Finance, Rory McCann, said a rate cut would boost borrowing capacity that would “in turn, support the housing market – a trend we’ve seen unfold many times before”.

“However, with the year drawing to a close, there might not be enough time left in 2024 for a significant market upswing, even if rates were lowered. It’ll be interesting to see how this would play out,” McCann said.

“Personally, I don’t anticipate a rate cut just before Christmas. With the holiday season driving increased spending, holding rates steady could be a wise move to prevent inflation from reigniting.”

Effie Nicol, branch principal and mortgage broker at Yellow Brick Road Earlwood, predicts an increase to borrower confidence, with considerations of loan amount increases, refinancing, or taking out new loans to “take advantage of the lower costs”.

However, finance broker at Manson Financial Services, Ryan Manson, told Broker Daily that a cut of 0.25 per cent would have a “minimal effect on borrower behaviour”.

“I feel that borrowers will feel confident that rates will not increase in the short term but I do not expect a huge shift to overall sentiment,” Manson said.

“The slightly lower rate will increase borrowing power slightly but not a significant amount. I feel the last two years of rate increases have left a mark and has meant many Australians taking a more active and thoughtful approach to their finances and spending behaviours.

“I would imagine that these new-found savings in their budgets will be absorbed to release pressure rather than simply using it as an opportunity to borrow more.”

Is there an urgency to cut rates?

Despite pressure from the federal government and commentators, the RBA has remained steadfast in its position of keeping the official cash rate held at 4.35 per cent, explicitly communicating that a rate cut will not happen in the near term.

Araya-Bishop said that while the debate for a rate cut continues, “the urgency for one may not be as immediate”, particularly if the central bank views its current policy as “maintaining a balanced stance”.

“If inflation remains within the RBA’s target band and the economy shows resilience, the argument to hold could seem stronger than cutting. However, if indicators like consumer spending weaken or the global economic outlook worsens, this could prompt a more urgent response,” he said.

McCann held a similar sentiment: “As per earlier predictions this year I thought we would see a November cut, and while I’d welcome reduced mortgage repayments, I’d rather see rates come down and remain stable than drop now, only to rise again within six to 12 months due to premature easing.

“It’s a challenging call, especially with the pressure on small businesses and mortgage holders, but a measured approach may ultimately provide the most sustainable relief.”

Nicol said the RBA’s approach so far has “kept things slow and steady” and that there’s no “strong sense of urgency to cut rates just yet”; however, “if inflation does change, cutting rates could be a better option to maintain balance.”

Manson said that a rate drop would be “greatly needed for the huge number of Australians [experiencing] financial hardship”.

“Personally, I feel there are still so many Australians feeling a huge amount of pressure to put food on the table and keep a roof over their family’s head,” Manson said.

“The pressure that Australians have sustained is not manageable long term and much-needed respite is needed as soon as possible.

“With that said, the last thing I would want is for inflation to spike leading into Christmas and risk future rate increasing which will be detrimental in the long term.”

Inflation’s in the target range – should we expect a change in the RBA’s rhetoric?

The most recent quarterly Consumer Price Index (CPI) data showed annual inflation dropping to 2.8 per cent from 3.8 per cent during the September quarter, sitting within the RBA’s target band of 2–3 per cent. Along with this, trimmed mean inflation is also in line with the RBA’s forecast at 3.3 per cent.

This sharp decline in annual inflation could see the RBA adopt a “more moderate or dovish tone”, according to Araya-Bishop.

“Meeting the inflation target removes some pressure to tighten policy, which may lead the RBA to emphasise stability and patience over further rate hikes,” he said.

“For brokers, this would mean a more predictable interest rate environment, where the focus could shift to helping clients navigate rate stability rather than bracing for hikes. A softer tone can also boost borrower confidence, encouraging prospective buyers or investors who might otherwise have held back in anticipation of a more restrictive policy stance.”

Meanwhile, Nicol told Broker Daily that inflation aligning with the RBA’s forecast may see it take on a “more cautious approach” and will “wait and see if this trend continues before making any further moves”.

Manson further said: “I know the RBA will be cautious about the overall protection of the economy and how the Christmas/holiday spending season will affect the future inflation figures.

“I feel hitting the target inflation this quarter shows great progress and will likely mean reduced rates over the next few months. This is wonderful news for borrowers across the country and will hopefully mean a strong position starting the new calendar year.”

[RELATED: Inflation is at RBA’s target: Should we expect a Cup Day rate drop?]

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.