August 2025 Home Finance Update
- Sean Law
- 7 days ago
- 3 min read
The recent Reserve Bank of Australia rate cut has dominated headlines recently and is causing ripple effects in the market, as I explain in this month’s stories:
Rate cut lifts borrowing power
Home loan refinance wave builds
New home sales rise 16%
Investor activity close to eight-year highs
Read on for the latest news.
The decision by the Reserve Bank of Australia to reduce the cash rate earlier this month doesn't just mean lower repayments for most borrowers – it also means the average person's borrowing capacity has increased, as occurred following earlier rate cuts in May and February.
With rates now lower, lenders are starting to adjust their serviceability buffers. That shift means borrowers can show they can afford more on paper, effectively lifting their borrowing capacity. For some, it could be the difference between missing out and finally being able to secure their preferred property.
Furthermore, PropTrack economist Angus Moore has estimated that every change of 0.50 percentage points in the cash rate equates to a change in borrowing power of about 5%.
While a stronger borrowing capacity is welcome, it’s important to borrow within your means.
Your borrowing capacity can vary significantly from lender to lender, which is why it’s important to work with a mortgage broker who understands the different credit policies of different banks.
An enormous number of Australians have been refinancing their home loans this year. In the June 2025 quarter, the number of mortgages that were refinanced with external lenders was 0.8% higher than the March 2025 quarter and a striking 20.9% higher than June 2024, according to the Australian Bureau of Statistics.
This surge in refinancing coincided with interest rate cuts by the Reserve Bank of Australia in February and May, which prompted many lenders to reduce their home loan rates. For borrowers, refinancing has been a way to secure lower repayments, lock in a sharper deal or access equity for other financial goals.
If you’re thinking about switching lenders, it’s important to do your homework. Refinancing can deliver big savings, but it’s important to choose the right lender, loan and structure. Fees and charges can erode the benefit of switching, and each lender has its own credit policies that can affect your borrowing power.
Australia’s new home sales remain at elevated levels, despite a 6.4% month-on-month decline in July, according to the Housing Industry Association (HIA).
HIA senior economist Maurice Tapang said the decline was likely due to buyers bringing forward their purchases to capitalise on end-of-financial-year sales in June, rather than a change in underlying demand, as new home sales in the three months to July rose by 15.9% – the highest level since the September quarter of 2022.
If you’re thinking about buying a new home, it’s important to remember that construction loans differ from standard home loans. Here’s how:
Funds are released in stages rather than as a lump sum
Repayments usually cover interest only during the construction period
Interest is charged only on the funds that have been drawn down
Inspections are carried out before each stage payment is made
The loan typically converts to a standard mortgage once construction is complete
Please reach out if you’re interested in learning more about construction loans and how they could help you finance a new build.
Property investor activity is close to eight-year highs, the latest data from the Australian Bureau of Statistics has confirmed. Investors took out 37.7% of all new home loans in the June quarter, well above the five-year average of 32.7%.
PropTrack senior economist Angus Moore said the number of new loans going to investors had increased steadily over the past 18 months, following a quiet period from mid-2022 (when interest rates started rising) and into 2023.
“Activity from non-investors has picked up too, but not to the same extent. What this means is, investors are making up a very substantial share of new lending – close to as high as we’ve seen in a couple decades in some of the smaller states, and nationally about the highest since 2017,” he said.
Depending on your situation, the potential benefits of property investing may include:
Rental income – providing a steady cash flow that can help cover loan repayments.
Capital growth – offering potential for long-term gains as property values increase.
Tax deductions – delivering negative gearing and depreciation benefits.
Portfolio diversification – offsetting the shares you might have in your superannuation.
Leverage potential – controlling a large asset with a relatively small upfront deposit.
I know I've given you a lot to think about, in terms of capitalising on rate cuts, refinancing to a better loan or building a new home. If you'd like to discuss any of those topics, please get in touch.
Sean Law