Borrowing power to get a boost from May rate cut

Home buyers’ maximum borrowing limits set by the banks will rise following Tuesday’s 0.25 percentage point cut to the cash rate by the RBA.

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Home buyers’ maximum borrowing limits set by the banks will rise following Tuesday’s 0.25 percentage point cut to the cash rate by the RBA.

Our analysis shows that a single person earning the average full-time wage, as recorded by the ABS, could potentially borrow an additional $12,000 from the bank as a result of the rate cut, assuming lenders pass it on in full, as many banks have already announced.

This is based on a person taking out an owner-occupier loan with no other debts, no dependents and minimal expenses. Borrowing capacity figures are estimates and can vary from lender to lender.
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Potential increase in maximum borrowing capacity following the May RBA cut
	Old borrowing capacity	New borrowing capacity	Increase
Single person (av. wage)	$509,000	$521,000	$12,000
Couple (2 x av. wage)	$1,019,000	$1,042,000	$23,000

Source: Canstar. Based on an owner-occupier taking out a 30 year loan at 6% today or 5.75% when RBA cut takes effect. Assumes minimal expenses, no debts, no dependents, average wage based on ABS data. See full notes below.

CBA, NAB update cash rate cut predictions

Two of the four big banks, CBA and NAB, updated their cash rate forecasts on Tuesday following the RBA’s Monetary Policy statement.

CBA’s economic team still expects two 0.25 percentage point cuts, one in August as previously predicted, however, it now believes the second will come earlier in September, rather than November.

NAB’s economic team now expects fewer cuts than previously forecast, however, it still expects cuts in July, August and November, bringing the cash rate to a neutral rate of 3.10% by the end of the year (previously it was expecting it to drop to 2.60% by Q1 2026).

ANZ’s economic team updated its cash rate forecast last Friday. It still expects two more RBA cuts to come, however, it shifted the timing of these cuts to August and then the first quarter of 2026 (previously it was July and August).

Westpac’s economic team is sticking with its forecast for a further two 0.25 percentage point cuts this year in August and November.

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Current big four bank cash rate forecasts
	Next move	Total number of cuts	Cash rate by March 26
CBA	-0.25% in Aug	2	3.35%
Westpac	-0.25% in Aug	2	3.35%
NAB	-0.25% in July	3	3.10%
ANZ	-0.25% in Aug	2	3.35%

Source: Canstar.

Should we see a total of four cuts in 2025, as CBA and Westpac are predicting, then a single person on the average wage could see their maximum borrowing capacity increase by almost $50,000 in the space of 12 months.

Feb cut = +$11,000

Feb + May cut = +$23,000

Feb, May, + 1 more cut = +$35,000

Feb, May, + 2 more cuts = +$47,000

Note: calculations are based on the current new owner-occupier variable rate of 6.00% which reduces by 0.25% pts, a loan term of 30 years, annual expenses of $24,000 for singles and $48,000 for couples, 90% of post-tax income available to service the loan and expenses, and a 3.00% interest rate buffer. Tax calculations based on the current financial year, excluding Medicare Levy. Assumes borrowers have no existing debts, minimal expenses and no dependents. Average wage is based on the ABS average full time ordinary time earnings wage of $103,024 p.a. and does not factor in pay rises. Borrowers should seek personal financial advice before deciding how much to borrow and know the actual amount will vary depending on their personal circumstances and between lenders.

Borrowing power could see house prices rise

Canstar’s data insights director, Sally Tindall says, “Prospective buyers will get another boost to their maximum borrowing capacity as a result of this week’s cash rate cut, however, it’s unlikely to help them get a foot on the property ladder faster.”

“When buyers see their maximum borrowing budgets rise at the same time, on the back of a policy change or a cash rate cut, the biggest winner in the equation is often the person selling the property.

“This cut will be a shot in the arm for the property market. However, if home owners aren’t equally encouraged to list their property for sale, then a surge in demand could see property prices rise even further.

“If you’re on the property beat, think about how you might get the upper hand on your competitors without blowing the budget entirely.

“Adjusting your strategy to look further from friends and family or starting out with a smaller home – even a renovator’s delight – could be a better long-term strategy than taking on a debt that you’re going to struggle to get on top of for years to come.”