With lending rates at their lowest in two years, buyers are increasingly entering the market and homeowners are taking advantage of refinancing opportunities, new data shows.
After a succession of rate rises throughout 2022 and 2023 and nine consecutive holds from late 2023 to late 2024, the Reserve Bank has implemented three rate cuts so far this year, bringing the cash rate down from 4.35% in January to 3.6% in August.
At a cash rate of 4.35%, lending rates were at the highest level since 2011 and housing affordability hit it's lowest historical level.
While there was still demand for homes, activity was more subdued as constrained affordability and increased stock for sale resulted in less urgency to transact.
However, the recent decline in interest rates has sparked a shift in trends, with most lenders passing on the rate reduction for new loans.
Although the effects of the August rate cut are yet to be seen in loans data, which tends to lag slightly, demand from buyers has risen.
According to lending indicators data from the Australian Bureau of Statistics, the number of new investor loans was about 51,800 in the June quarter, up 3.5% from the March quarter.
On an annual basis, the number of investor loans was 12% higher in the 12 months ending June 2025 compared to the 12 months ending June 2024.
Typical lending rates have fallen from 6.3% to 5.9% since February 2025 for investors taking up new loans, which has increased borrowing capacities considerably.
This has broadened the range of properties investors can afford, driving up the number of investors and competition in the market.
A similar trend was seen among owner-occupiers as well, though to a lesser extent. From the March 2025 quarter to the June 2025 quarter, the number of loans rose by 0.9%.
The number of loans to owner-occupiers in the 12 months ending June 2025 was 4% higher than the year prior. Both the annual (5.8%) and monthly (2.4%) increases were primarily due to rising loans from non first-home buyers.
This was likely a result of typical lending rates on new loans decreasing to 5.8% from 6.1% in February 2025 for owner-occupiers.
While the growth in loans in this segment has been modest in past quarter, the full impact of the rate cuts is likely to be more pronounced in the upcoming months.
The decline in interest rates has also increased the number of refinanced loans. In the 12 months ending June 2025, refinanced loans for owner-occupiers and investors increased by 11.1% and 11.3% respectively compared to the same period in 2024.
This reflects the rise in investors and owner-occupiers switching institutions or negotiating better terms with their existing banks to take advantage of lower monthly repayments and reduced interest expenses.
Rate cuts have a large impact on the market, primarily by increasing borrowing capacities, lowering repayments and improving the affordability of homes.
These changes lead to flow-on effects that directly influence home price trends.
With people able to borrow more and afford a larger share of properties, an increasing number of buyers enter the market, boosting demand and competition. This surge in activity places upward pressure on home prices.
Since the first rate cut in February this year, home prices have risen 2.5% nationally. Following the most recent reduction in August, prices are poised for more growth.
In the coming months, the full effect of the rate cuts is likely to become more evident. We expect the number of loans to both owner-occupiers and investors to continue increasing, potentially by a larger margin.
The number of refinanced loans is also anticipated to rise as more institutions decrease interest rates to remain competitive.
Lower interest rates will continue to stimulate demand in the market and add to the current price growth momentum.
While the pace of growth may increase if further rate cuts materialise in the remainder of the year, housing affordability will still be at historically low levels. This may temper growth, despite the more positive borrowing conditions.
