Monthly update Feb 2025: Taking Advantage of the First Rate Cut
The Reserve Bank of Australia (RBA) has dropped the cash rate from 4.35 per cent to 4.1 per cent, marking the first rate cut since November 2020. This decision signals confidence that inflation is moving in the right direction, while also ensuring the RBA avoids past mistakes of reacting too slowly. For borrowers, this means lower repayments and improved borrowing capacity. For homeowners, it suggests potential property value growth, while buyers should expect more competition at open homes as the year progresses.
How Borrowers Benefit - Lower repayments
While this 25 basis point cut won't drastically change cost-of-living pressures, every dollar helps. All four major banks moved quickly, with CBA adjusting rates just six minutes after the RBA’s decision. Economists from CBA are also expecting another 2 rate cuts this year.
Click above to calculate your new repayments off the back of this rate cut.
It's important to note that not all lenders adjust repayments the same way, as shown in the example above for a principal and interest repaying, owner-occupied, variable home loan.
NAB reviews repayments quarterly, meaning borrowers will see lower interest charges but unchanged repayments immediately unless requested. If you're a NAB customer and want to lower your repayments now, get in touch with your bank (or us) to discuss your options.
How Borrowers Benefit - Improved Borrowing Power
Rate cuts will slightly boost borrowing capacity. For example, a couple earning $190,000 combined with a $6,000 credit card limit could previously borrow $940,000. After the rate cut, they can borrow $961,000—an extra $21,000. While not game-changing, every bit counts for those stretching to enter the market.
Why the RBA Cut Rates Now - Avoiding Past Mistakes
RBA Governor Michele Bullock acknowledged the central bank was too slow to raise rates in response to inflation, which contributed to prolonged economic challenges. This rate cut aims to get ahead of the curve and rebuild credibility.
Economic Data behind the RBA's decision
The RBA has historically waited until inflation hit the 2–3 per cent target before cutting rates. This time, it’s acting earlier, believing inflation is on the right trajectory. Here's the data driving the decision:
Inflation: Down from 7.8 per cent at its peak to 2.4 per cent in late 2024—close to the RBA’s target range.
Labour Market: Unemployment is stable at 4 per cent, and job creation remains strong.
This rate cut is designed to support economic growth without reigniting inflation—but it’s a fine balance.
Housing Market Impact
Rate cuts typically fuel higher property prices, particularly in premium markets. According to CoreLogic’s recent article, a 1 per cent rate cut has historically led to a 6.1 per cent rise in national dwelling values.
Sydney & Melbourne’s premium suburbs tend to see the biggest gains. Sydney’s Leichhardt saw house values jump 19 per cent after a previous 1 per cent rate drop.
Inner-city Melbourne markets have shown similar trends.
When rates drop, repayments drop, and borrowing capacities improve, so it makes sense for the property market, to react positively.
Final thoughts
This first rate cut won’t solve affordability challenges overnight, but it’s a step in the right direction. Borrowers could expect another rate cut this year, perhaps more, according to the experts. Property buyers, be prepared for increased competition as borrowing capacities improve and others just like you, enjoy lower mortgage repayments.
As the economic environment evolves this year, staying informed is key. Whether you’re considering changing your loan structure, planning a property purchase, or just looking to understand your options, we’re here to guide you every step of the way.
If you want to know more about the different rates, terms, or bank specials on offer at the moment or just have a general question, please send a note to peter@blackandwhitefinance.com.au or click the start today button a little lower. With the help of our amazing Black and White Finance team, we will be able to support you.
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