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A rate cut would be welcome news for borrowers, resulting in lower repayments. Comparison site Canstar’s analysis shows an owner-occupier with a $1 million mortgage would experience a $154 drop in monthly repayments with just one interest rate cut.
But the impact of a rate cut on renters could be harder to detect, economists say.
How would interest rate cuts impact renters?
Rental prices have boomed since the beginning of the COVID-19 pandemic — CoreLogic data shows rents increased 39 per cent nationally between August 2020 and June 2024.
The Consumer Price Index rose 0.2 per cent in the December 2024 quarter and 2.4 per cent annually, according to the Australian Bureau of Statistics. Source: SBS News
Dr Chris Martin, a senior research fellow at the University of NSW City Futures Research Centre, said the impact of interest rates — which the RBA cut to 0.1 per cent before gradually increasing to 4.35 per cent — is difficult to track in relation to rent prices.
Australia’s ‘big four’ banks are predicting a series of rate cuts from the RBA.
Australia’s cash rate has remained steady at 4.35 per cent since the last increase in November 2023. Source: SBS News
Commonwealth Bank’s economic team expects four 0.25 percentage point cash rate cuts in 2025, with the first one expected in February and then one cut per quarter in the following three quarters.
“Investors are probably making their move because they know once we get into a rate-reducing cycle and we see multiple rate cuts coming through, it’s likely to create momentum in our housing markets and push up pricing,” she said.
Rate cuts affect demand and supply
These two effects could largely offset each other, meaning there wouldn’t be much of an impact of a rate cut on rents, he said.
According to Tenants Union of NSW chief Leo Patterson Ross, one in four landlords don’t have a mortgage and aren’t impacted by rate changes.
Cash rate is not the only factor driving rental prices
Tulip said rents are still rising because “we don’t have enough homes”, which is evident in lower-than-average rental vacancy rates around the country.
Powell said when rates come down, more renters would have the opportunity to buy homes because of their increased borrowing capacity.
