Rate cuts are back, and Australian homeowners are certainly happy about that. Many Queenslanders in particular are feeling more confident about stepping into the property market or are keen to review their current mortgages.
The last rate cut – announced by the Reserve Bank at its August board meeting – gave us our third 0.25 percentage point reduction this year, taking the cash rate to 3.6%.
This is great news! But what does it really mean for you. If you’re looking to buy, how much more can you borrow? And, if you currently have a mortgage, how much money can you expect to save, and what will you be able to do with that extra windfall?
Naturally, the immediate benefits of a rate cut are lower repayments and increased borrowing capacity. Many of the homeowners who come to us ask the same question – how much will I save with a rate cut?
Across the board, Canstar estimates that borrowers nationally could gain an extra $12,000 in borrowing capacity, which translates to about $198 a day in additional borrowing power over the June quarter.
When it comes to savings, on a $600,000 loan, even a 0.25% cut could save you around $90 a month, which comes in at just over $1,000 a year. These savings are great opportunities. They could either reduce financial pressure from the rising cost of living, or be redirected towards bigger goals like renovations, paying down your loan faster or even investing to build wealth for the future.
The key is not just to pocket the savings, but to plan strategically how to put them to work for you and your family.
Rate cuts mean that lenders are competing harder than ever for your business. This is great news for you as the borrower and makes it an ideal time to review your current loan.
Over the years, we’ve found that many of our clients are still paying a ‘loyalty premium’ when they come to us. This is simply another way of saying that they continue to stick with the bank they know, even though the loan might be costing them a little bit (or even quite a lot) more.
Your current lender may not be offering the best rates, or they may not be offering them to you as an existing mortgage holder. Refinancing with another lender is a great way to reduce payments, free up your cash flow or even shorten the loan term overall.
Even a small reduction in your rate can add up to tens of thousands of dollars in savings over the life of your loan. And by looking at a wide variety of lenders, you can get the best loan with the best features for your situation.
Lower repayments and a higher borrowing capacity may also create room for you to fund home improvements. Maybe you’ve been waiting to add another bedroom or bathroom. Or maybe you’d like to set up your home so you can rent a room out to a tenant. This is a great time to take action. And all homes need cosmetic and functional modernisations over time that improve liveability and add long-term value.
Investing in your home while rates are lower can be a smart move. However, it’s important to budget carefully and make sure that the renovations will deliver a solid return if you choose to sell.
Everybody likes a little more money in their pockets. But perhaps the biggest opportunity that comes from the current rate cuts is your opportunity to leverage your property equity to build wealth.
In Australia, more people than ever are concerned with building up generational wealth, particularly because of the challenges that many younger Australians are facing when it comes to entering the property market.
The high cost of housing combined with rising levels of debt and stagnant wage growth, means younger Australians are finding it harder to get ahead and even to simply live. Using today’s lower rates to strengthen your own financial position (and strategise your financial goal setting) can help set you – and your family – up for the future.
So, what are your options for building wealth by making your equity work harder? You could consider purchasing an investment property or diversifying the extra cash flow into shares and managed funds. Or you might want to invest in a small business or even put it into your superannuation.
With more manageable repayments, it’s a great opportunity to explore the different ways you can grow your long-term financial position.
Despite all the opportunities that more borrowing power brings, we also need to remember that more borrowing power also brings more competition. More buyers mean that prices can push higher too, particularly in sought-after areas.
This is what we’re experiencing currently. Nationally, the value of new housing loans climbed to $87.7 billion in the June quarter, with activity rising across first home buyers (up 5.7%), upgraders (up 4.4%) and investors (up 1.4%).
Of course, lower interest rates may also encourage new listings to come onto the market. And more homes for sale may have a levelling effect, giving buyers a wider choice and reducing some of the upward pressure on prices.
Another key factor to watch is the proposed changes to the First Home Guarantee Scheme which will come into effect from 1 October 2025. Thresholds for purchase price will be lifted – going from a cap of $8000,000 to a cap of $1million in the Brisbane metro area – and there will be no more income caps or place limits at all. (Check out our blog next month to see more details on the changes!)
What this means, however, is that more buyers will qualify for government support, which opens the door for many first home buyers who were effectively locked out of the market prior to the changes. Again, this extra demand has the potential to drive prices higher.
So, rate cuts will give you more borrowing power, but other factors – like government schemes and housing supply – will shape what it means for property prices in the months ahead.
Rate cuts can feel like free money in your pocket, but the smartest move is to treat them as an opportunity, not a windfall. Whether you buy a new home, invest the extra cash or renovate, be sure you can comfortably afford the repayments on your mortgage even if rates rise again.
We suggest keeping a 3% buffer (i.e., making sure you can afford the repayments even if rates rise by 3%). This gives you peace of mind and protects you from future rate changes.
Your approach should be to make decisions that serve your long-term goals – not just your short-term borrowing power. By planning ahead and aligning your decisions with long-term goals, you can turn today’s lower rates into lasting financial gains – and make them work for you, not against you.
If you’ve been wondering how much will I save with rate cut and what to do with the extra cash flow, now is the time to get clear advice and put those savings to work. Talk to our team today to see how you can make the most of the current rate cuts and put them to work for your future.
