Rate Cuts, Deposits & Demand: Why the Market May Be Gearing Up for a Second Win

Australia’s housing market is entering a fresh phase of momentum — and the signs are hard to ignore.

On 20 May 2025, the Reserve Bank of Australia (RBA) delivered a 25 basis point interest rate cut, bringing the official cash rate down to 3.85%. This follows months of cooling inflation and growing pressure on household balance sheets, particularly for mortgage holders.

At the same time, the Federal Government has expanded access to its 5% deposit scheme for first-home buyers, making it easier for more Australians to get on the ladder.

While these measures offer welcome relief, they also risk reigniting the very pressure policymakers have been trying to manage: rising property prices driven by constrained supply and increasing demand.

“The intent is positive — affordability, stability, growth — but the unintended consequence is upward pressure,” says Brad Wearne, General Manager at Meridian Australia. “It’s a market that reacts quickly, and when policy and sentiment align, prices tend to move.”

So, what’s really going on — and what should investors be doing next?

Lower Rates, Higher Confidence

The RBA’s rate cut, its second for 2025, comes after 18 months of tight monetary conditions. For homeowners and investors alike, the move signals confidence in the economic outlook and provides tangible financial relief.

For every quarter-point cut, many buyers can borrow significantly more – often tens of thousands of dollars. It increases confidence, improves serviceability and often brings hesitant participants back into the market.

“Even a modest rate cut can change the numbers,” Brad explains. “We’re seeing an uptick in pre-approvals and loan activity — a sure sign that buyers are preparing to act.”

Historically, rate cuts have preceded price rises in key markets. This time appears no different, and early movers are already positioning themselves ahead of the curve.

The 5% Deposit Scheme: Helping or Heating?

Labor’s expanded First Home Guarantee scheme allows eligible buyers to purchase with just a 5% deposit, without paying Lenders Mortgage Insurance (LMI). While well intentioned, in practice it increases demand significantly, often for the same limited pool of entry level properties.

Giving more buyers access to the market without solving the supply issue is like opening the gates to a race with no extra lanes,” Brad says.“You’re creating heat, particularly in the sub-$900k range where demand was already strong.”

This surge in buyer activity adds competitive pressure, especially in corridors where investors typically find high-growth opportunities.

Mortgage Fatigue Eases, but Listings Still Lag

The interest rate cut will reduce pressure on stretched borrowers, particularly those who may have been on the brink of selling. But relief doesn’t necessarily mean a flood of new listings.

In fact, many sellers may now hold off, anticipating a further rebound in pricing before they make a move.

“We’re in a rare moment where both buyers and sellers are feeling slightly more optimistic,” says Brad. “But that doesn’t mean listings will surge. In some markets, it may mean they stay tight for longer.”

This ongoing shortage means competition for quality investment stock is likely to intensify in the short term.

New Supply Still Stuck in the Pipeline

Despite the Federal Government’s target of 1.2 million new homes by 2029, construction approvals remain below required levels. Developers are still navigating higher costs, planning delays, and labour shortages.

At the current pace, Australia is on track to fall over 200,000 homes short of that goal — deepening the imbalance between supply and demand.

“There’s a gap between political ambition and practical delivery,” Brad notes. “Even with the right policies in place, we’re looking at years before meaningful new supply hits the market.”

For investors, that means well-located assets are likely to remain scarce — and competition will favour those who act early.

What the Smart Money Is Watching

At Meridian Australia, we focus on fundamentals. And right now, they’re pointing clearly toward a tightening market:

• Vacancy rates remain low across most metro markets (in some cases under 1%)

  
  

• Migration remains high, with 1.8 million new arrivals projected over five years

  
  

• Rental yields are resilient, especially in well-researched corridors

  
  

• Buyer sentiment is improving, which typically precedes price movements

  
  

“Smart investors aren’t waiting for the headlines to catch up,” Brad says. “They’re moving ahead of the curve, guided by data, not noise.”

Our Take: This Is a Window — and It’s Already Starting to Close

We are seeing a confluence of rare conditions: reduced interest rates, new buyer incentives, limited new supply, and growing sentiment. Together, these form a clear message — this is a moment of opportunity.

“This isn’t a time to chase the market. It’s a time to outpace it through research, strategy and clarity,” Brad concludes.

With prices likely to accelerate over the next 6–12 months, investors who act now may benefit from both capital growth and tight rental conditions.

Want to Get Ahead of the Curve? Let’s Talk.

Whether you're looking to make your first investment or expand an existing portfolio, now is the time to act with clarity and purpose.

Book a complimentary strategy session with a Meridian Property Investment Consultant and take advantage of this early cycle opportunity before the market heats up.

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