iscover
iscover 
The Reserve Bank of Australia (RBA) has announced its decision on the cash rate target. For the first time since November 2020, the rate has been dropped by 0.25 per cent to 4.10 per cent.
Despite this good news for borrowers, CoreLogic research director Tim Lawless said not to expect consistent cuts.
“We shouldn’t get our hopes up for a rapid or significant rate cutting cycle in the near term. The RBA is likely to remain alert to the data flows, with persistently tight labour markets, a weak Australian dollar and elevated levels of global uncertainty remaining as downside factors that are likely to keep the loosening cycle a gradual and cautious one,” said Lawless.
“From a housing perspective, the 25bp cut will provide some modest relief to borrowers, with the average mortgage rate for owner occupier loans set to ease from around 6.32 per cent to 6.07 per cent if passed on in full (which is highly likely). A variable rate borrower with $750k of debt should see their monthly repayments reduce by around $121/month.”
With a cut comes the likelihood of more borrowers looking to purchase property or refinance loans. Connective’s executive director Mark Haron said brokers should prepare for an influx of clients.
“Today’s RBA decision to cut interest rates marks a pivotal moment for many borrowers who have been managing higher repayments over the past few years. While we have not seen a significant rise in arrears, more customers are reaching out to their banks for relief – a sign of financial strain that this rate cut may help ease,” said Haron.
“The anticipation of this move has already driven strong activity in the mortgage market, with our data showing that January applications are up nearly $2 billion compared to the same period last year. With interest rates trending downward, borrowers are looking to upgrade, enter the market or return as investors. We’re also observing an increase in refinancing activity.
“We hope this is the first of at least three rate reductions this year, providing much-needed stability for borrowers. Brokers play a crucial role in guiding clients through these changes and ensuring they secure outcomes that align with their clients’ long-term goals.”
This comes off the back of the “strongest January on record” for home loan submissions via Mortgage Choice.
“The year is off to a strong start, with Mortgage Choice brokers reporting they’re seeing increasing numbers of buyers ready to put their property plans into action, and many more interested in refinancing. In fact, last month was the strongest January on record for Mortgage Choice loan submissions,” said Mortgage Choice CEO Anthony Waldron.
“In a sign that borrowers are expecting rates to fall further, 96 per cent of loans submitted by our brokers in January 2025 were for variable rate home loan products.
“With this rate cut, I think we can expect competition to heat up in the home loan market and I encourage borrowers to seize this opportunity to secure a better rate. If you haven’t had your loan reviewed in the past year, chat with your broker to ensure your loan still meets your needs.”
With inflation finally becoming subdued and unemployment low, the RBA has some ammo to justify a rate drop.
“While housing demand remained resilient to affordability constraints in 2024, the pace of home price growth slowed throughout the year. This culminated in small falls over the past two months as the softer end to 2024 carried over into the new year,” said Eleanor Creagh, REA Group senior economist.
“Both buyer confidence and borrowing capacities will be boosted now interest rates have begun to fall. As a result, the price falls seen over the past two months are likely to be short lived and may reverse with the slight improvement to affordability and buyer confidence driving renewed demand and price growth.
“Housing affordability is at the worst level in three decades which means the price uplift could be more muted compared to previous easing cycles. This rate cutting cycle is expected to be shallow, resulting in the pace of home price growth trailing the strong performance of recent years.”
