Rain or shine? What home loan lenders are forecasting for the year of rate cuts

Interest rate relief

The good news is that the long-awaited rate cuts for 2025 have started. While it’s never worth trying to guess what the Reserve Bank of Australia will decide, its decision this week to knock 0.25% off the cash rate is a welcome sign the year is off to a good start.  

All four major banks agree that we are likely to see even more rate cuts this year after this week’s cut ended the steady 4.35% after 14 months. 

Banks are suggesting that we could see between two and five rate cuts over the course of the year, though rates are unlikely to fall as low as we’ve seen in the past.

Property prices could slow  

Property prices have been stubbornly high, making it tough for newcomers to the property market to make their foray into the market. 

But there could be good news around the corner, with the PropTrack Home Price Index recording two consecutive monthly falls in national home prices in December and January.

Bank of Queensland group head of home loans James Sheffield tells Mortgage Choice he expects the coming year will see house price growth slow even more, while prices many even drop in some areas.

“This, along with rate cuts, will make homes more affordable for first time buyers. However, due to housing supply issues and a growing population, this price drop might not last long,” Mr Sheffield warns.

“This will make homes more affordable and help current borrowers. With many lenders currently offering fixed rates below their variable rates, this highlights the trade-off for customers between securing rate and repayment certainty via a fixed rate or retaining flexibility through a variable rate,” he says.  

Fixed or variable?

The million dollar question this year will be whether to opt for fixed or variable rates. While the best option for you will depend entirely on your personal circumstances, Great Southern Bank deputy chief executive Megan Kelleher says latest consumer research reveals shifts in consumer sentiment and behaviour in Australia’s housing market.

Homeowners have navigated refinancing and rising rates – and only 2% of purchasers opting for fixed rates, she says.

Despite low numbers overall, there has been a year-on-year uptick in the demand for fixed-rate products over the last eight months in particular, driven by reductions in product pricing, according to the latest Mortgage Choice Home Loan Report. In other words, most buyers are opting for variable rates in 2025.

'Fixed versus variable interest rates': youtube.com/mortgagechoice

Affordability concerns remain

Housing affordability remains the predominant concern this year, Ms Kelleher says.  

“This is particularly evident in the first home buyer segment, where we’ve tracked an average increase of $20,000 in loan and borrowing sizes over the past year,” she adds. “This upward pressure on borrowing requirements reflects both the resilience and determination of first home buyers and also the growing challenges they face entering the market.”

Consumer confidence from the research also paints a telling picture.

“Australians, especially those currently renting, perceive the market as more challenging to enter compared to a year ago,” Ms Kelleher says.

“This sentiment is particularly acute among renters, who are facing the dual pressure of paying rents while trying to save for increasingly larger deposits.”

Lenders say first home buyers are becoming increasingly resourceful in how they approach the buying journey. Picture: Getty

But first home buyers are becoming increasingly resourceful in their determination to get onto the property ladder, she says, with strong uptake of federal government schemes to support first home buyers demonstrating that while the path to homeownership might be more complex, it is possible.

Reliance on government incentives

Government incentives will continue to drive first home ownership into 2025, predicts Ubank chief home lending officer Kanishka Raja.

“First home ownership will continue to be a focus, driven by government incentives and the aspirations of younger Australians wanting to get their foot in the door,” he says.

Mr Raja adds that many newcomers to the property market will also look for more affordable entry points to the market, such as options like rent-vesting, shopping around for competitive rates and flexible loan options.

Shopping around

For existing mortgage customers, we can expect to see an uptick in refinancing, with many Australians ready to take advantage of potentially lower interests rates in 2025.

'Preparing for a home loan application': youtube.com/mortgagechoice

“It’s important for existing mortgage customers to talk to their lender or broker to understand the options available to them, and banks and other financial providers should stand ready to help,” Mr Raja says.

Buyers will be shopping around for a better deal, regardless of how long they might need to stay on hold.

“Younger buyers, particularly Gen Z and Millennials, will continue to seek flexibility, convenience and speed in their home loan choices. They are more likely to value features such as multiple offset accounts, low to no fees, and loans offering higher loan to value ratios.

Digital home loans are also likely to be more prevalent in 2025, he says.

“However, we anticipate that there will be a growing trend among customers that balances the convenience of a digital experience with the reassurance of having a human available to assist when they need it the most.”

Ray White Group chief economist Nerida Conisbee warns property hunters to be aware of market myths. Picture: realestate.com.au

Trying to time the market

Property markets constantly generate debate and discussion, often leading to misconceptions about how they work. Ray White Group chief economist Nerida Conisbee says the myths about buying property often lead to missed opportunities.

Some buyers are circling the market waiting for the right time to make a move, but market timing in property is risky, she says.

“We’ve seen experts with extensive data get predictions wrong. When you add high transaction costs like stamp duty, legal fees and moving expenses, trying to time purchases can be costly.

The best time to buy, sell or invest in property is simply when you’re ready – with enough savings, stable income and clear housing needs, Ms Conisbee says.

“Making property decisions based on your situation rather than market predictions usually works out better.”