Do Interest Rate Cuts Really Make Housing More Affordable?
In theory, falling interest rates should be great news for first home buyers — lower rates mean cheaper home loans, right?
But in Australia’s fast-moving property market, it’s not that simple.
When interest rates drop, borrowing becomes easier — and that often pushes property prices even higher. The result? Many first home buyers end up worse off than before.
Why Lower Interest Rates Can Push Prices Up
When the Reserve Bank cuts rates, mortgage repayments become cheaper. That means banks are willing to lend more money — so buyers can bid higher for the same home.
In a competitive market, this doesn’t make homes more affordable — it just fuels demand and drives prices up.
A Real Example: What Happened in 2020–2021
During the pandemic, the RBA cut the cash rate to just 0.1%. Sounds great for buyers, right?
But instead of creating more affordable conditions, house prices skyrocketed — rising more than 25% in just 18 months. The initial benefit of lower repayments was wiped out by soaring purchase prices.
Demand Rises Faster Than Supply
Australia’s housing supply can’t keep up with the surge in demand triggered by rate cuts. Delays in planning, building, and infrastructure only make things worse — especially with a growing population.
The end result? More buyers chasing fewer homes, and a market that becomes even harder to enter.
The Danger of Overconfidence
Low interest rates can also create a false sense of security. Buyers might stretch their budgets, thinking rates will stay low forever. But when rates rise again — as they have in recent years — repayments can quickly become unmanageable.
So, Do Rate Cuts Help First Home Buyers?
Not really — at least, not in the long run. Without deeper reforms to increase housing supply and improve access, interest rate cuts alone won’t solve affordability.
Solutions like:
Faster planning approvals
More diverse housing options
Smarter government support programs
…are essential if we want real, lasting change.
Need help navigating today’s property market?
Whether you’re buying your first home or refinancing, our credit advisory team is here to help. We’ll work with you to find the right loan strategy that fits your needs.