One of the most immediate effects of interest rate cuts is an increase in borrowing power. Lower interest rates mean reduced mortgage repayments, allowing investors to afford higher-value properties or expand their portfolios with greater financial ease.
Something that I’ve heard a lot of people say over the last few years is “I’m going to wait for rates to go down before I buy something”. We’re going to break that down to see if that’s a good strategy or if it’s something that’s causing homebuyers to miss out.
For context, we’re just going do a really simple case study with a couple with no kids earning $80k each and using the current home loan option from a big four bank.
Whats we’re also going to look at is price versus the borrowing capacity, what that difference is, and we’re also going to look at what the effects of the interest rates cuts have done to repayments as well.
With a 6.18% rate, their borrowing capacity was around $782k. With a rate reduction of 0.25, which takes their interest to 5.93%, their borrowing capacity went up by $17k to $799k, around a 2% increase.
Another rate cut of 0.25, taking the bank’s interest rate down to 5.68%, would give that couple another $20k, taking their borrowing capacity up to basically $820k.
Although each rate cut looks to benefit the buyer, the reality is that the market is moving more quickly at the moment.
While waiting for the rate cut has increased our couple’s borrowing capacity a little bit, a property in that price range in Newcastle has gone up around 5% over the past year, so your actual purchasing power has dropped. In other areas like Townsville, properties have grown around 30% in 2025, so anyone waiting to buy from the start of the year will be severely disadvantaged.