Rate cuts could boost borrowing power by up to $134,000, says Canstar

Potential interest rate cuts could significantly boost the borrowing power of property buyers, according to research by financial comparison site Canstar. The big four banks are forecasting at least three 0.25 percentage point cash rate cuts by the end of 2025, with one major bank predicting as many as six during this time.

Canstar’s research shows that three rate cuts of 0.25 percentage points each could increase borrowing power by an estimated $27,000 for a solo buyer earning an average income of $98,218, taking their maximum loan size to $419,000. For a couple with one partner working full-time and the other working half the time, the boost could be $45,000, raising their borrowing capacity to $419,000. A couple with both partners working full-time could gain $63,000 in borrowing power, increasing their maximum loan size to $969,000.

If the more optimistic forecast of six 0.25 percentage point rate cuts materialises, a solo borrower could see their borrowing power rise by $58,000 to $450,000. A couple with one full-time and one part-time income might experience a $95,000 increase, reaching a total borrowing capacity of $733,000, while a dual-income couple could see a boost of $134,000, raising their borrowing power to $1,040,000.

Steve Mickenbecker, Canstar’s finance expert, says that while it can be appealing to wait for rate cuts, buyers need to balance the borrowing power recovery with the potential property price surge. “Interest rate increases of the past couple of years put home ownership plans on hold for many Aussies. Rate cuts will deliver a release from the holding pattern as buyers will be able to borrow more,” he said.

Mickenbecker noted that high interest rates have raised repayments across the market, potentially hitting first home buyers the hardest, with repayments becoming an even greater barrier than saving an adequate deposit was two years ago. He also pointed out that would-be upgraders have been slowed down by repayment increases, with many likely waiting until rate cuts improve affordability before making their next move in the market.

“New buyers should look into all the options available to them to get a foothold. It can make a difference to put savings into a high interest account, maybe even the government’s First Home Super Saver Scheme and investigate stamp duty exemptions, grants and shared equity options,” Mickenbecker advised. “Anyone looking to buy will also need to be selective about their loan choice. It’s about getting the lowest rate offer to maximise their borrowing capacity.”