04 Oct RBA in Focus: What the Next Rate Decision Means for Property Finance
The Australian lending environment continues to evolve under the weight of shifting macroeconomic conditions, transparent policy signals, and structural adjustments in credit markets. For participants in property finance, understanding these dynamics is critical for making well-informed decisions.
1. The Latest Interest Rate Decision: A Hold at 3.60 %
In its September 2025 meeting, the Reserve Bank of Australia (RBA) opted to hold the cash rate steady at 3.60 per cent. This outcome was broadly expected, as the central bank continues to adopt a cautious “wait-and-see” stance in face of persistent inflationary pressures and weaker global tailwinds.
The RBA cited uncertainty in both the domestic and international outlook, along with stronger-than-anticipated inflation data and resilient economic activity, as key reasons for maintaining this pause. While three rate cuts have already been delivered in 2025 (February, May, and August), the Board remains wary of moving prematurely.
Market expectations of a further cut are now moderated. Bond markets and futures pricing suggest a reduced probability of a November rate cut, with some economists pushing revised forecasts into 2026.
What this means for property finance: The current rate environment offers relative stability, avoiding further upward pressure on borrowing costs. That said, margins between the official rate and mortgage pricing remain significant, and the timing of any future cuts is uncertain.
2. Credit Conditions & Lending Standards
While headline rates command much attention, the lending environment is shaped as much by credit conditions and standards as by the policy rate itself.
Prudent Underwriting and Macroprudential Oversight
Regulatory bodies continue to emphasise prudent buffers in assessing borrower serviceability. APRA has maintained macroprudential settings to support financial stability, noting that lending standards remain sound even as inflation and interest pressures ease.
APRA has previously signalled that despite the cost-of-living pressures and elevated household debt, frameworks should preserve margins for stress testing and maintain discipline in underwriting. The financial stability review from the RBA further supports this, observing that risks from household, commercial real estate, and business lending remain “contained.”
Role of Non-Bank Lenders
Non-bank (or non-deposit-taking) lenders continue to expand selectively into property and business lending niches. Although they remain a relatively small share (around 6 % of financial system assets), their growth in housing and business lending has supported competition and credit availability, particularly in segments underserved by major banks.
Credit quality in this sector remains broadly sound, with low arrears in housing lending. However, some caution is warranted: reduced “skin in the game” (for instance, via offloading securitised loans) may, over time, weaken incentives to maintain rigorous standards.
3. Mortgage Pricing & Borrower Behavior
Rate Pass-Through and Product Movements
In response to the RBA’s earlier rate cuts, many lenders have passed through partial reductions to home loan borrowers, though not uniformly. In recent weeks, there have been modest moves across both fixed and variable home loan segments. For example:
- Several lenders cut variable rates for owner-occupiers and investors by an average of 0.05 percentage points.
- Fixed-rate lenders reduced 78 products by about 0.19 percentage points on average.
- The lowest available variable rate for first-home buyers is now in the vicinity of 4.99 per cent for eligible products.
Nonetheless, many borrowers remain in a “wait-and-see” mode, deferring refinancing or new borrowing until inflation prints or rate direction becomes clearer.
Refinancing Activity
Refinancing has picked up, especially among borrowers seeking to take advantage of more competitive deals, but the magnitude is tempered by borrower fatigue, costs of switching, and uncertainty of future rate moves.
For new entrants or expansion plans in the property sector, this dynamic underscores the importance of timing: locking in good terms when available, but reserving headroom for future adjustments.
4. Broader Financial Stability and Risk Considerations
The RBA’s April 2025 Financial Stability Review emphasises that, overall, the system has been resilient: defaults remain low, capital buffers are strong, and loan losses in aggregate have been minimal. The major banks, moreover, are considered “well placed” to manage potential economic stress, supported by capital and liquidity buffers in excess of regulatory minima.
Still, challenges persist:
- Household stress: While the share of borrowers behind on mortgage repayments appears to have stabilised at pre-pandemic levels, cost-of-living pressures and wage growth remain key variables to watch.
- Corporate and SME fragility: Insolvencies have risen among smaller businesses, which are more vulnerable to interest and input cost pressures, though spillover effects remain limited.
- Liquidity & funding shocks: The growing size of the non-bank sector and the scale of funding dependencies (especially via securitisation) could amplify stress if market dislocations occur.
- Global uncertainty: The global environment—trade disruptions, inflation surprises, geopolitical tension—continues to inject volatility into capital flows and funding costs.
For lenders and investors in property finance, diligence in scenario planning and stress testing is more important than ever.
5. Implications for Property Finance Investment Participants
From the perspective of Property Finance Invest, the current lending environment suggests several strategic focal points:
- Opportunity in yield spread: Even with the official rate on hold, credit spreads remain sufficiently wide to permit attractive returns in well-underwritten property finance deals — particularly in development lending or bridging finance, where risk premia can compensate for funding cost volatility.
- Selective deployment & discipline: In a cautious macro backdrop, deal selectivity is paramount. Counterparty strength, conservative leverage, robust covenants, and prudent buffers will act as risk mitigants.
- Flexible structures: Loans with adjustable margins, step-downs, or re-pricing mechanisms can offer flexibility if rates move later than anticipated.
- Monitoring for rate inflection signals: Key data to watch include quarterly CPI (especially due October 29), wage growth, employment trends, and dwelling price momentum. These will likely guide the RBA’s next directional shift.
- Capital sourcing and liquidity management: Maintaining access to diverse funding sources (bank credit lines, securitisation, institutional capital) helps buffer funding volatility. Stress testing for liquidity strain remains essential.
- Partnerships with non-bank platforms: The non-bank lending sector’s growth and capabilities suggest potential collaboration or co-lending opportunities in niche property financing segments.
6. Outlook: What to Watch in Coming Months
- Inflation trajectory & labour data: If inflation continues to moderate and wage growth softens, further easing by the RBA may come into view. Conversely, upside surprises could delay cuts or even provoke a pause.
- Credit demand and property market dynamics: As buyer sentiment responds to rates, the volume and pricing of property transactions will feed into lending demand.
- Refinancing waves and maturity walls: A concentration of debt re-pricing or renewal could stress weaker borrowers and create opportunities for well-positioned financiers.
- Regulatory recalibrations: APRA and other regulators may adjust macroprudential settings or guidance if stress broadens.
- Global risk spill-overs: External shocks in credit markets, geopolitical flare-ups, or commodity price swings could influence funding conditions or discount rates.
Conclusion
The current landscape is one of measured optimism interlaced with caution. The RBA’s decision to hold at 3.60 per cent signals that further rate moves are data-driven, rather than mechanical. Meanwhile, credit discipline, structural resilience, and strategic flexibility become ever more critical for participants in property finance.
For investors, originators, and intermediaries aligned with Property Finance Invest’s focus, the environment offers opportunities — particularly in segments where risk premia reward rigor and expertise. Sustainably navigating this phase will require vigilance, capital adequacy, and readiness to act when opportunities emerge or conditions shift.