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Economists, financial markets, and even the Big Four banks are nearly unanimous in forecasting a cash rate cut for the RBA’s first decision of 2025. Market confidence is strong, with a 93% chance of a 0.25% rate cut on February 18, 2025.
If this prediction comes true, Australia will see its first rate reduction since the aggressive rate-hike cycle began in May 2022, pushing the cash rate from a record low of 0.10% up to 4.35%. This reversal marks a significant shift in monetary policy as the RBA faces a slowing economy and moderating inflation.
Major Bank Predictions
| Bank | Cash Rate Prediction | Rate Cut Prediction |
| NAB | 3.35% by December 2025 | February 2025 |
| Commonwealth Bank | 3.35% by December 2025 | February 2025 |
| ANZ | 3.10% February 2026 | February 2025 |
| Westpac | 3.85% by August 2025 | February 2025 |
The Not So New Normal for Interest Rates
Homeowners who bought for the first time during the COVID era were fortunate enough to experience some of the lowest interest rates in Australian history.
These low rates allowed many to enter the property market and secure home loans at record low interest rates.
Speaking on Property Insights, Mark Bouris said that Australian borrowers experienced a low-rate environment for a number of years leading up to 2022, when rates began to rapidly rise.
He emphasised that the days of 2% and 3% interest rates are behind us and that’s the reality homeowners now face.
Gemma Dale, DIrector of SMSF and Investor Behaviour at NAB, agreed with Mark, stating:
“Those days of 2% mortgages won’t come back unless there’s another crisis. And frankly, we don’t want another crisis. The reality is, we’re adjusting to a new normal where a personal mortgage rate of 5% is likely.”
“The most important thing for people to recognise is the neutral rate. If the economy is stable—not great, but not dreadful—the neutral rate will likely land much higher than what people expect.”
“We’re talking about around a 3% neutral rate. From there, the bank will add a margin, which means borrowers we’ll be looking at a mortgage rate of around 5%, potentially 4.5% at best, and that’s probably 12 to 18 months away.”
Will All Lenders Pass on the Rate Cut?
When the RBA cuts the cash rate, there’s typically an expectation that lenders will pass on these savings to borrowers. However, this isn’t guaranteed—and not all lenders move at the same pace or to the same degree.
If the RBA announces a 0.25% rate cut, keep an eye on your lender’s response. Some lenders may pass on the full discount, while others may opt for a partial adjustment.
What can you do?
- Actively monitor announcements from your lender and competitors.
- Use loan comparison tools to see if better deals are available elsewhere.
- If you’re with a slower-moving lender or feel their rates remain uncompetitive, reach out to a YBR mortgage broker. They can help you explore refinancing options suited to your situation.
Tips for Borrowers If Rates Drop
A rate cut presents homeowners with strategic opportunities to optimise their finances. Here are actionable steps to ensure you make the most of a potential cut.
1. Increase Your Loan Repayments
Instead of simply pocketing the savings from lower interest, consider maintaining your current repayment level. This strategy allows you to pay down your loan principal faster, reducing the total years—and interest—you’ll pay over the life of your mortgage.
2. Boost Your Offset Account
If your loan comes with an offset account, direct any savings into it. This reduces the balance on which interest is calculated, saving you money without locking funds away.
3. Refinance for Competitive Rates
A rate cut often sparks competition among lenders. If you feel your current lender isn’t giving you the most competitive deal, speak with a YBR Home Loans expert. We’ll help you compare offers across our trusted partners and negotiate terms that align with your goals.
4. Revisit Your Budget
When repayments decrease, it’s an ideal time to assess your household budget. Evaluate where savings from reduced rates could be redirected—whether to reduce debt, invest, or build an emergency fund.
Looking Ahead
All signs seem to point toward a February rate cut, offering potential relief to both borrowers and those looking to enter the market. However, it’s crucial to stay proactive and informed, regardless of the RBA’s decision.
Big changes to interest rates—up or down—are a reminder of the importance of regularly reviewing your financial position. Whether you’re looking to save on repayments, buy your first home, or invest in property, our team of YBR mortgage experts can help you make the most of the current market conditions.
Reach out today to get a free home loan health check and we’ll get you sorted.
