‘Soul destroying': Rates coming down is a good thing for mortgage holders but could lock other Aussies out of the market

News.com.au

23-05-2025

The official cash rate was slashed this week by 25 basis points, down to 3.85 per cent, but while mortgage holders feel relief, the good news could also screw over Aussies trying to buy right now.
Lower interest rates should restore confidence in the market, and increase prices, in turn making young buyers panic. I would know, I am one.
All four big banks came to the party on Tuesday and confirmed that customers would be getting a rate cut on their variable home loans.
Financial expert Julian Finch said that a drop in rates automatically means Aussies will have higher borrowing capacity.
'Which will ultimately mean the competition increases and the prices rise,' he told news.com.au.
As someone trying to buy a two-bedroom apartment in Sydney right now for under $1 million the possibility that house prices could increase is an actual nightmare.
Mr Finch warned that first-time home buyers need to start making a 'huge effort' to get into the property market, if not ASAP, then at least before January 1st.
This is when Anthony Albanese's election promise of 5 per cent deposits for first-time home buyers will kick in.
The Albanese government will cover a portion of a first-time homebuyer's loan, so Aussies only have to borrow 5 per cent and do not have to pay lending mortgage insurance.
From January, a first homebuyer will be able to purchase a $1 million property with just a $50,000 deposit.
The medium unit price in Sydney is $1,030,000.
The combination of rates dropping and 5 per cent deposits means the market is set to flood with buyers who were previously locked out – which, according to Mr Finch, confirms my fears that prices will surge.
'My prediction is that prices will rise in direct correlation with the easing interest cycle. If a 0.25 per cent rate cut means a 2-3 per cent increase in borrowing capacity,' he told news.com.au.
'I believe prices will rise along the same trajectory – so far we have had 0.5 per cent in cuts for 2025 – if we have two more this year – we will see prices up between 10-12 per cent for the year.'
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The idea that prices will soar and there will be more competition on the market is a terrifying prospect.
Suppose in the next 12 months, prices rise by 10 per cent, which hypothetically would mean million-dollar property would now be worth $1.1 million. In that case, our borrowing power would not have increased enough for us to be able to afford it.
This kind of price threat makes me want to buy something immediately, but we've been trying to buy for months with zero luck.
My partner and I aren't first home buyers – well, I am, and he isn't. He sold his one-bedroom apartment to allow us to upsize and buy something more suitable for our future, and upsizing in Sydney these days means a single extra room.
When we started looking, we even mentioned wanting a ground-floor apartment with a small patch of grass or a courtyard.
We naively planned on getting a place with space for our dog or somewhere to put a barbecue, but now we're just happy if an apartment block doesn't need $6 million worth of waterproof repairs.
At some point, we had dreams of two bathrooms, but six months into our property journey, we'd just be happy with a place that doesn't smell damp.
The Sydney market is cooked, and trying to find an apartment for under a million bucks is pretty soul-destroying.
Even though to us that feels like so much money and will result in us being in a fair amount of debt, you're at the lower end of the market.
When we first started our home-buying journey, we'd go and look at three or four properties on a Saturday and usually pause and have a nice lunch or something – or not bother to see a property if it interfered with any social plans.
Now, we treat house hunting like a military operation. We leave the house at 9am on Saturdays for the first home inspections and usually don't finish up until at least 2.30pm. There's no way we're stopping for lunch because we try to see as many properties as possible, even really ugly places!
Our days are filled with trying to find parks, dealing with dodgy intercoms and evasive agents and being told an apartment has a vista, when it looks out onto a main street.
There's also the heartbreaking reality that price guides or estimates are deceiving, you basically want to always add an extra $100,000.
I was verbally told by an agent that a place with a price guide of around $800,000 just sold for $940,000, and it didn't come with a car space.
Similarly, I inspected a property whose agent told me the market feedback was in the $800,000 range.
The property then sold for over $900,000.
It is tempting to feel like giving up, and property expert Jack Henderson certainly hasn't lifted my spirits because he told me that there's no doubt in his mind that Sydney properties will keep increasing in value.
'Absolutely it is going to make prices go up,' he said.
Mr Henderson said that if you're fearful of being locked out of the Sydney property market, you should consider relocating.
'If you're not rich you shouldn't live in Sydney. It is where the wealthy people live, the wealthy people live in Sydney that is just a fact,' he said.
Mr Henderson said property prices are just going to 'get worse and worse' and become more affordable, and he'd advise young couples without a high joint income to move out.
'If you're not a high income earner of earning between $200,000 to $300,000. I don't think Sydney is a great place to live because you can't afford the lifestyle,' he said.
The market already feels competitive with investors and downsizers, and if things heat up even more, I'm afraid we'll be locked out forever … maybe we really can't afford Sydney.