Interest rate cuts are giving first home buyers a new opportunity to enter the property market in 2025.
If you have been watching prices rise in capital cities, it may feel like buying your first home is out of reach.
Lower interest rates are helping many buyers borrow more and reduce monthly repayments, but property prices remain high in many areas, making careful planning essential.
What are interest rates?
Interest rates are the cost of borrowing money from a lender, expressed as a percentage of your loan.
They determine how much you pay each month in addition to repaying the principal. The higher the rate, the more you pay, and conversely, the lower the rate, the more manageable your repayments become.
What is the current interest rate?
As of September 2025, the Reserve Bank of Australia (RBA) has set the official cash rate at 4.10%.
This is a reduction from earlier in the year, which has lowered borrowing costs for many home buyers.
These changes influence the rates lenders offer on home loans, meaning buyers can potentially access larger loans or reduce monthly repayments compared to previous months.
How lower rates affect your buying power
The RBA has reduced rates in recent months, which has directly influenced borrowing power for prospective buyers. This has been a very welcome change to the constant hikes of 2024 and can benefit home buyers in a few ways:
- Borrow more: With lower rates, the same income now supports a larger mortgage, opening up more property options.
- Lower repayments: Monthly costs are reduced, giving you more flexibility in your budget.
- More competition: While borrowing capacity rises, the lower rates also attract more buyers, which can push demand and prices higher in popular areas.
Seeing the full picture of affordability
Even with lower rates, property affordability remains a challenge for many Australians. First home buyers need to consider not just the mortgage, but all associated costs:
- Stamp Duty: Can add tens of thousands to your upfront costs, depending on the state.
- Lenders Mortgage Insurance (LMI): Required if your deposit is less than 20%.
- Ongoing costs: Maintenance, insurance, and utilities are part of everyday homeownership.
Taking all of these into account will help you understand what you can genuinely afford and avoid overstretching your finances.
Preparing yourself financially
To make the most of the current market, it helps to be proactive and prepared:
- Check your credit score and improve it if needed to access better lending terms.
- Save for a deposit that reduces or removes the need for LMI.
- Seek pre-approval, so you can move quickly when the right property becomes available.
- Decide whether a fixed or variable rate best suits your long-term plans and lifestyle.
Finding value in the market
With city prices still high, it may be worth considering alternatives:
- Middle-ring suburbs offer lower entry prices without sacrificing access to amenities.
- Regional centres often provide more affordable options, larger homes, and a better lifestyle balance.
Interest rate cuts provide a valuable opportunity for first home buyers, but they do not eliminate affordability challenges entirely. By planning carefully, considering all costs, and exploring suburbs beyond the inner city, buyers can make smarter decisions and take full advantage of the current market conditions.
This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.
