RBA Rate Cuts 2025: How Do Interest Rate Cuts Affect Property Investors?

It appears that, in 2025, RBA rate cuts are back on the agenda. This comes after quite the rollercoaster few years for interest rates in Australia.

It all started in late 2020, when the global pandemic was creating significant uncertainty for the Australian property market. In response, the RBA reduced the cash rate to a record low 0.1%, driving down interest rates and invigorating buyers. Then, from mid-2022, rising inflation saw the cash rate rocket back up to 4.35%, via 13 increases over 18 months.

It then sat at that level until earlier this year, when it started falling again. So far in 2025 (as of October), RBA rate cuts have brought the cash rate back down to 3.6%. However, experts believe that this is only the beginning and further cuts should be expected over the coming months.

Acknowledging this, we wanted to explore a few important questions – like how do interest rate cuts affect property investors? If you’re an investor, and the RBA’s 2025 rate cuts continue, what will this mean for your portfolio? And what should you be doing now to prepare for what most likely lies ahead?

Interest rates + property investors = a complex equation

Given mortgage repayments are most property investors’ biggest expense, lower interest rates may seem like an obvious win. However, it’s not that simple, with lower rates leading to a range of other changes within the market. While most of these create opportunities for savvy investors, some present significant challenges that require careful management.

It’s also important to note that reductions in the cash rate do not directly translate to lower interest rates. Once a reduction in the cash rate has been announced, banks decide whether to pass this on to their customers. And as we’ve already seen with the 2025 RBA rate cuts, this is definitely not guaranteed.

How falling interest rates could impact the Sydney property market

As rate cuts usually increase borrowing power, they generally drive sales, increasing house prices and putting downward pressure on rents. That said, exactly how interest rates will affect property investors really depends on the state of the market.

In Sydney, evidence suggests we have passed the peak of the rental boom, with rents clearly starting to stabilise. Annual growth in Sydney’s median rent eased significantly from 9.9% in 2023 to just 3.0% in 2024. This is despite ongoing population growth, limited supply of new rental listings, and the vacancy rate remaining low.

At the same time, the sales market has also cooled significantly, with prices plateauing after the recent boom. Annual growth in the median Sydney house price dropped from 10.6% in 2023 to 3.2% in 2024. Notably, prices actually peaked in June 2024, with the median falling slightly (by 0.4%) between June and December.

There are a few other trends to note when considering how the 2025 RBA rate cuts will impact investors:

• Rental demand: While we’re past the peak of the rental boom, rents are continuing to grow – albeit at a slower rate. Across the first half of this year, in Sydney, the median rent has increased by a further 1.7%. This reflects the ongoing good demand for rentals, with quality properties continuing to attract interest.
• Furnished rentals and shorter-term leases: Shifting economic conditions and the continuing housing crisis have seen interest in more flexible rental arrangements increase significantly. Shorter lease terms (e.g. 6 months or less) are being snapped up by renters who are reassessing their living situation. Professionals seeking temporary accommodation and new residents looking to explore the city are also paying significant premiums for furnished rentals.
• Investor sentiment: Over the last couple of years, investors have faced higher purchase costs, increased lending costs, and changing regulatory requirements. As a result, interest in property has waned, as investors have shifted their focus to other asset classes. This has included many investors offloading their properties in an effort to rebalance their portfolios and boost their yields.
• Rental supply: Building on the previous point, low investor sentiment has had a notable impact on the flow of new rental listings. The move away from property as a preferred investment option has resulted in fewer properties being made available for lease. The combination of limited supply and strong demand has created real challenges for renters, particularly here in Sydney.
• Urban return: During the pandemic, there was a clear change in rental dynamics, with a significant move toward suburban and regional locations. The flow of renters away from the city may have stopped, but their return to urban areas has been slow. While major developments (like the Sydney Metro) are improving the liveability of the inner-city, many renters still prefer quieter settings.

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Making the most of the RBA’s 2025 rate cuts

Given current market conditions, we expect the 2025 RBA rate cuts will impact property investors in a few main ways.

Most significantly, they should mean lower borrowing costs and increased borrowing power, which should help improve investor sentiment. This, in turn, should boost the supply of rental listings, helping rebalance current supply/demand issues and further slowing rent growth. Lower interest rates will also enable some tenants to transition to home ownership, further reducing competition for quality rentals.

All of this will drive a shift in the balance of power, from landlords to renters. This will mean it is harder to attract and secure quality tenants, making tenant retention even more important. With this in mind, there are a few important things we recommend focusing on:

• Providing flexibility: It’s worth making some small concessions if it will help keep your tenant in place longer. For example, if they are reluctant to sign on for another 12 months, consider offering a shorter lease term. Similarly, allowing your tenant to personalise the property will help them feel more settled and encourage them to stay on.
• Pricing strategically: As rent growth slows, annual increases become harder to justify and could drive your tenant to consider other options. Keeping the rent the same – shows respect and that you value the tenancy.
• Investing conservatively: Lower interest rates may increase your borrowing capacity, allowing you to continue growing your portfolio, but proceed with caution. As buying activity ramps up, competition for quality properties will also increase, meaning you will likely pay a premium. Rates are also likely to rise again in the future, so you need to be careful not to overextend yourself.

Want to discuss this further?

How the RBA’s 2025 rate cuts will impact you really depends on the structure of your portfolio. As such, if you would like to better understand how you are affected, you should speak to your financial adviser.

Frequently Asked Questions About RBA Rate Cuts and Property Investment