In a shift that hasn’t been seen since the Reserve Bank of Australia (RBA) began its rate hikes in May 2022, the market is now expecting four interest rate cuts over the next year.
The ASX RBA Target Rate Tracker, which uses data from 30-day interest rate futures to forecast cash rate changes, indicates that the RBA may lower rates by 25 basis points in February 2025. Additional cuts are predicted to follow, with the market anticipating three more reductions leading up to August. The RBA is set to meet eight times in 2025 to review the cash rate.
Currently, the RBA’s cash rate sits at 4.35%.
What Do Lower Interest Rates Mean for Off-the-Plan Apartment Buyers?
The prospect of rate cuts brings welcome news to those considering an off-the-plan apartment. Lower rates can ease several pain points, especially around housing affordability and loan serviceability.
For example, Finder’s analysis suggests that a buyer with a typical mortgage of $641,000—based on the Australian Bureau of Statistics (ABS) average—could save over $5,000 per year if rates drop as predicted. Here’s a breakdown of how those savings would work with each rate cut:
| Rate Cuts | Cash Rate | Loan Interest Rate | Monthly Repayment | Monthly Savings | Annual Repayment | Annual Savings |
|---|---|---|---|---|---|---|
| Current | 4.35% | 7.07% | $4,296 | – | $51,552 | – |
| 1 Cut | 4.10% | 6.82% | $4,189 | $107 | $50,268 | $1,284 |
| 2 Cuts | 3.85% | 6.57% | $4,083 | $213 | $49,020 | $2,556 |
| 3 Cuts | 3.60% | 6.32% | $3,977 | $319 | $47,724 | $3,828 |
| 4 Cuts | 3.35% | 6.07% | $3,873 | $423 | $46,476 | $5,076 |
Increased Buying Power and Developer Activity
Beyond reducing monthly repayments, lower rates will improve loan serviceability, allowing buyers to borrow more. This will likely boost demand, which has been constrained due to higher rates for the past two years.
Additionally, developers may become more active. Many have delayed launching new projects while waiting for more favorable interest rate conditions. With borrowing costs expected to decline, the market may see an increase in the supply of off-the-plan apartments as developers move forward with projects.
The Current Situation
Despite the optimism, the RBA has maintained a steady rate of 4.35% throughout 2024 due to inflationary pressures. The Board is expected to meet again next week and is likely to hold the cash rate steady. However, the outlook for 2025 offers hope for both buyers and developers as rate cuts appear increasingly probable.
For those in the market for an off-the-plan apartment, the coming months could present significant opportunities as rates fall, increasing affordability and potentially driving new supply in the property sector.
