December cash rate on hold: 6 reasons to be optimistic about 2025
Despite interest rates sitting higher than during covid, property markets in some areas were strong in 2024. The areas with the top growth were Perth, Adelaide and Brisbane, seeing a 13.2% increase over the last 12 months.
With 2024 now mostly in our rearview mirror – what does 2025 have in store for us? We believe there are a number of reasons to be optimistic.
1. The first cash rate cuts in five years. Financial markets expect the first cash rate cut to be in the middle of next year, with another following it. This is dependent on how things play out in the start of the year but would bring welcome relief to many households. Cuts to the cash rate would result in lower interest rates on home loans (lowering repayments) and also boost borrowing power.
2. Property growth to slow. Ray White data shows the Australian housing market has started showing signs of cooling. The growth in values varies depending on the area, however an increase in property listings has resulted in calmer markets. This could be good news for people looking to buy as it means more time to run due diligence and find the right property without prices skyrocketing as quickly.
3. Investor loans are up. The number of investor loans are up 18.8% nationally, according to CoreLogic, showing confidence in the market. The higher interest rates haven’t deterred investors in many areas. Some areas, like Melbourne, have seen a backward trend in investors in response to the state’s tax policies, however there are still opportunities to find economically viable investment properties in many parts of the country.
4. Increase in number of pre-approvals. According to Loan Market data, pre-approvals are up nearly 10% this November compared to last, showing an increased interest in buying over the next few months. This could be because first-home buyers are looking to get into the market before competition heats up following a cash rate cut.
5. Interest rates are dropping. Despite the cash rate not changing, the majors along with smaller lenders have made cuts to some of their variable interest rates. Competition remains high particularly for new customers, meaning it is a good time to shop around to see if you could be on a more competitive rate.
6. Help for first-home buyers. The federal government recently approved the Help to Buy scheme that will make it easier for low- and middle-income home buyers to purchase. This scheme, along with the First Home Owner Grant and the reduction in stamp duty in many states and territories for first-home buyers could help get your foot onto the property ladder sooner.
Why moving sooner could be better than later
While a rate cut next year would be a welcome relief for many, it is worth looking at what has happened in the past following a rate cut. Ray White had a look at the impact on house prices the month after a rate cut – particularly when there hasn’t been a rate cut for at least six months. Nationally the monthly percentage change in house prices following a rate cut was 0.6% (based on data since 2011). Some cities had stronger impacts, namely Sydney and Melbourne growing by an average 1.4% and 1% respectively.
Due to this, it could be a good idea to think about making your purchase sooner rather than later.
Licensing statement: Rayne Finance ABN [70 605 100 838] is authorised under LMG Broker Services Pty Ltd Australian Credit Licence 517192. Disclaimer: (1) As with any financial scenario there are risks involved. This information provides an overview or summary only and it should not be considered a comprehensive analysis. You should, before acting in reliance upon this information, seek independent professional lending or taxation advice as appropriate and specific to your objectives, financial circumstances or needs. This publication is provided on the terms and understanding that: (2) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication. (3) LMG Broker Services Pty Ltd, Rayne Finance (Seed Lending Pty Ltd) and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to the maximum extent permitted by the law to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.
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Struggling with ATO tax debt? If you miss payments, the ATO may charge 11.36% interest on unpaid amounts. One option is to consolidate your tax debt into your home loan, potentially saving on interest, though refinancing costs apply. Speak with a mortgage broker to explore this option and avoid further penalties.
How is interest calculated on my home loan?
Mortgage interest is calculated daily based on the remaining principal, but the reduction of the principal isn’t linear. In the early years, a larger portion of each payment goes toward interest. However, by making additional repayments or using an offset account, you can reduce the principal faster and pay less interest over the life of the loan.
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How redraw facilities and offset accounts can save you money
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