Following the Reserve Bank’s decision to reduce the cash rate to 3.60% earlier in the week, all four major banks swiftly announced they will pass on the full cut to variable home loan customers.
Commonwealth Bank and ANZ will apply their rate reductions from 22 August, NAB from 25 August, and Westpac from 26 August. And as expected, Macquarie Bank remain in the race confirming they will pass on the full cut to variable home loan customers, with changes taking effect on 15 August 2025.
In this week’s newsletter, we break down what this rate cut, and perhaps another in the not too distant future, will mean for borrowing capacity at various income levels.
With the RBA trimming the cash rate by 25 basis points this week, existing borrowers can breath a sigh of relief as lenders pass on the cut reducing the cost of servicing the monthly debt.
Just as importantly for people in the market for property, reduced interest rates also result a noticeable uptick in borrowing capacity.
Analysis of the major banks reveals that a 0.25% cut can swell borrowing power by approximately 2.29%. That simple change could mean the difference between securing your desired home or falling short.
Here’s how that may play out across a range of annual household incomes:
Lenders often base borrowing capacity on serviceability ratios (e.g., maximum loan amount relative to income). A 2.29% increase in borrowing power roughly scales with income, making a pre-approved borrower earning $200,000 now able to borrow an additional ~$24,000.
This boost delivers tangible relief: whether a buyer is entering the market, aiming for a larger property, or fine-tuning investment strategies, that extra capacity counts. But remember, not all lenders pass on cuts equally, and eligibility still hinges on obligations like credit history, living expenses, and other debts.
In short, this 0.25% cut is more than just a rate drop, it’s a chance to stretch purchasing power.
If you have a client who has fallen short on borrowing capacity recently, put them in touch with us so we can revisit their circumstances.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
