| |

2025 review: rate cuts, record prices and the rise of the first-time buyer

ByAndrew Mirams

After several tough years for borrowers, 2025 finally brought some relief! The Reserve Bank began trimming rates, property prices pushed to fresh highs (great for sellers), and policy changes reshaped the landscape for first home buyers, investors and upgraders alike.

It was not a simple story of easy money and booming prices, though. Inflation stayed stubborn, regulators kept a close eye on risk and affordability reached new lows even as mortgage stress eased for many households. 

So, let’s take a look back through 2025 and wrap up the big themes, what they meant for borrowers, and how they set the scene for what our team expects to see in 2026.

From hikes to cuts: how the RBA shaped 2025

A year that started with hope for cuts

The year opened with markets pricing in between two and six interest rate cuts. Borrowers dared to hope that the most aggressive tightening cycle in decades was finally behind them, even as inflation remained the key concern.

Three cash rate cuts, then a hard pause

February

The RBA delivered its first 0.25 percentage point cut of the year, taking the cash rate to 4.1 per cent. All major lenders passed it on promptly, offering a modest but meaningful reprieve for mortgage holders.

May

A second 0.25 percentage point cut followed, bringing the cash rate down to 3.85 per cent. With inflation easing, confidence lifted and borrowing capacity began to improve again.

August

The third and final cut for 2025 arrived in August, taking the cash rate to 3.60 per cent. From there, the RBA shifted firmly back to a cautious, data-dependent stance. 

By the end of the year, hotter than expected inflation data had changed the conversation completely. Annual inflation was sitting around 3.8 per cent in the year to October, above the RBA’s 2 to 3 per cent target, and financial markets were speculating that the next move in 2026 might actually be up rather than down.

The message from Governor Bullock in December was clear: do not bank on further cuts any time soon and be prepared for the possibility of higher rates if inflation does not moderate.

Borrowers finally got some breathing room

Even with that cautious tone, the three cuts delivered real relief.

Lenders moved quickly

Each cut was passed through in full by the major banks and most other lenders. That immediately reduced repayment pressures and, importantly, lifted maximum borrowing capacities that had been heavily squeezed by previous rate rises.

Record loan volumes and a broker-led market

By the June quarter:

  • The value of new home loans funded hit a record $187.6 billion, up 21.3 per cent on the previous quarter.
  • Mortgage brokers wrote 77.6 per cent of all new loans, underscoring the importance of quality guidance in a complex lending landscape.

Mortgage stress eased, despite poor affordability

Short-term arrears (borrowers 30 to 89 days behind) fell to 0.55 per cent of outstanding credit, down from 0.60 per cent. At the same time, Roy Morgan data showed that just over 28 per cent of mortgage holders were still considered “at risk” in June, which is high by historic standards but trending lower through the second half of the year.

By November, mortgage stress had fallen to its lowest level in around two years, even while separate affordability measures showed the cost of purchasing a home relative to incomes at record worst levels.

The clear takeaway: rate cuts helped existing borrowers cope, but surging prices made it harder than ever to get into the market in the first place.

Property prices: from pause to new highs

Momentum returned early and built through the year

After a flat start, property values across the capitals began edging higher from March as confidence in eventual rate relief grew.

  • By the middle of 2025:
    The main home value indices were showing monthly gains of around half a per cent.
  • By September and October, monthly growth had accelerated towards 0.8 to 0.9 per cent in the capital cities combined. 

According to the PropTrack Home Price Index, by October national home values were:

  • 0.6 per cent higher over the month
  • 7.5 per cent higher over the year
  • Sitting at a record median around $858,000.

By December, house prices in several capitals were at all-time highs, driven by tight supply and resilient demand.

Investors came back strongly

Lower rates and rising rents helped lure investors back into the market. In August, investor loan activity hit its highest level in eight years as investors responded to improved yields and strong capital growth prospects.

Refinancing also boomed through 2025 as borrowers used lower rates and increased competition between lenders to renegotiate their loans. Many who felt “trapped” on uncompetitive packages in 2023 and 2024 finally had options again.

Policy shifts and a turning point for first home buyers

One of the defining stories of 2025 was the shift in policy settings supporting first home buyers.

July

The government increased places in the existing first home buyer scheme and flagged that from 1 January 2026, buying limits would rise and income tests would be removed, making it easier for higher-earning professionals and dual-income households to participate.

October

In a surprise move, those changes were brought forward to 1 October 2025. From that date:

  • Places under the federal scheme became effectively uncapped.
  • Property price ceilings were lifted across the capitals and regions.
  • Income tests were removed.
  • Eligible buyers could enter the market with as little as a 5 per cent deposit while avoiding lenders mortgage insurance.

Unsurprisingly, first home buyer activity jumped. By October, national demand for new home loans was more than 14 per cent higher year on year, with a particularly sharp rise in first home buyers seeking loans between $750,000 and $1 million, largely reflecting the new price thresholds.

HECS / HELP changes boosted borrowing capacity

Regulators also made important changes to the way student debt is treated in home loan assessments:

  • In June, APRA finalised new guidance on HELP debts in mortgage assessments. 
  • From late September, HECS / HELP balances are excluded from the debt figure used in debt-to-income ratio calculations, which can materially improve the borrowing power of many younger buyers.

For first home buyers with significant student debt behind them, these changes can add tens of thousands of dollars to their borrowing power when structured correctly.

APRA kept a close eye on risk

At the same time, regulators were increasingly vocal about the rise in higher risk loans as buyers stretched to keep up with record prices and easing credit conditions. Discussions around potential caps on high debt-to-income lending gathered pace through the second half of the year.

The message is clear: although borrowing may become easier for some segments, there is a real chance of further credit tightening if risky lending grows too quickly.

Rental markets stayed tight

Despite a small lift in vacancy rates in some cities, Australia remained very much a landlord’s market in 2025.

  • National vacancy rates hovered around 1.0 to 1.2 per cent, well below the roughly 3 per cent mark usually considered balanced. 
  • Domain and SQM Research both reported rents at or near record highs, although the pace of rent growth slowed compared with 2022 and 2023.

For tenants, this meant continued pressure on household budgets and limited choice. For investors with well-located properties, it meant strong competition for quality rentals and very low vacancy risk.

A big year for Intuitive Finance

Alongside these market shifts, 2025 was also a year of growth for Intuitive Finance itself.

The team continued to work with a broad range of clients, from first home buyers using new government schemes, to experienced investors making the most of renewed price growth and improved borrowing conditions.

In Melbourne, Intuitive Finance moved into its new Cheltenham office on Chesterville Road, consolidating its presence in a key growth corridor in the south-east.

Looking ahead: why 2026 could be the year of the first home buyer

Intuitive Finance expects 2026 to be heavily defined by first home buyer activity.

Incentives and higher caps will draw buyers in

With the raft of changes that began in late 2025 and are fully in place for 2026, first home buyers across the country will have:

  • More generous property price caps.
  • No income testing under the federal 5 per cent deposit scheme.
  • Friendlier treatment of student debt in borrowing assessments.

This cocktail of incentives is likely to bring thousands of additional first home buyers into the market. However, it will also mean:

  • Stronger competition for entry-level homes.
  • Increased pressure on already tight housing stock.
  • Further upward pressure on prices at the lower end of the market.

As more tenants become owners, rental stock is likely to fall at the margin, which will keep rental markets tight even if vacancy rates tick a little higher. That means landlords can probably expect continued solid rental conditions, albeit with growth at a more normal pace than recent years.

Which markets are likely to lead?

Most major forecasts point to further price growth in 2026, but with some clear standouts in prime cities:

  • Perth, Brisbane, Adelaide and Darwin are expected to continue to outperform, building on their exceptional post-Covid runs and supported by strong population growth, tight stock and comparatively affordable price points.
  • Melbourne has lagged since the pandemic, but Intuitive Finance expects it to begin shaking off its relative slumber in the second half of 2026, particularly as affordability there looks better when compared with Brisbane and Sydney.
  • Sydney is likely to see more modest growth from a higher base, with affordability restraints and potential future rate increases capping upside.

All of this will play out against a backdrop where markets are increasingly pricing in the risk of RBA rate hikes in 2026 if inflation remains sticky.

For buyers and investors alike, that means strategy will matter more than ever.

What does this mean for you?

Let’s break down some actionable takeaways from 2025 that are worth considering in 2026.

Do not assume rates will only fall from here

With inflation still above target, borrowers should budget for the possibility that rates could move either way.

Use the new rules to your advantage, not as an excuse to over-stretch

Higher caps, looser income tests and friendlier student debt treatment can be powerful tailwinds for first home buyers, but only if used within a sensible overall budget (never overextending yourself financially).

Expect competition to intensify at the affordable end of the market

Entry-level houses and units in well-located suburbs are likely to see strong demand from first home buyers and investors. Being finance-ready will be critical.

Investors should plan around both rent and rate risk

Tight rental markets are supportive, but a higher interest rate environment in 2026 would change the cash flow profile of many investment properties.

How Intuitive Finance can help

Whether you are:

  • A first home buyer planning to take advantage of the new 5 per cent deposit and higher price caps
  • An investor looking to position in markets with strong 2026 growth potential, such as Perth, Brisbane, Adelaide or Darwin
  • A homeowner wanting to refinance in a highly competitive lending environment

The team at Intuitive Finance can help you:

  • Understand how recent policy and regulatory changes apply to you
  • Structure your lending to maximise borrowing capacity without taking excessive risk
  • Compare lenders and products across the market to find a solution that suits your goals

If you are considering your next move, now is the time to get a clear, personalised finance strategy in place so you can act quickly when the right property opportunity appears. Contact our team today for a free non-obligation consultation.

The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether it is appropriate for you and seek professional advice before making any financial decisions.

Knowledge Hub Updates

Join 12,400 readers who already receive it.
Andrew Mirams
Latest posts by Andrew Mirams (see all)