What falling interest rates mean for property investors in 2025

With three cuts in the official interest rate this year so far and more expected, it’s the perfect time for investors to conduct a major review of their finances, tax liabilities and investment portfolios, and to revise buying strategies.

For some, the prospect of a further lowering of the Reserve Bank of Australia (RBA) rate down from 3.6 per cent means it’s the perfect time to consider splashing out on more residential property, especially as prices have already begun rising strongly.

For others, it could mean more stocks and shares. Or perhaps it’s a sign to sit tight and clear some debt.

“There’s no one size fits all,” said buyers’ agent Rich Harvey, chief executive of propertybuyer.com.au.

“If you’re 25 or 35 or 55, you’ll want a different strategy for your age, income and overall goals. If you’re looking at retirement, some people are happy to retire on $80,000 a year; others want $350,000.

“I am seeing a lot of people scared to embrace debt, though, and when the bank offers them $1.2 million, they say they’ll buy for $600,000 instead. But the bank has already been conservative in assessing their borrowing capacity, so they should spend that $1.2 million on the best possible property they can buy.”

The new lower interest rate cycle has already seen a resurgence of property investor activity, and conventional wisdom it’s usually the early movers who fare best. So, now is the time, says Harvey, to rebalance portfolios and strike out afresh.

“If you’re after cash flow, you might like high-yielding properties like multi-dwellings,” he said. “But whatever your aims, you need to optimise your structures, whether borrowing personally or through a trust or SMSF, and get the right team around you of a broker, buyer’s agent and tax advisor to build your portfolio.”

Dropping rates mean cheaper funds and a higher borrowing capacity, which translates generally into higher demand and rising property prices, says Ben Nash, founder of Pivot Wealth and author of Virgin Millionaire.

“We’ll also see property shortages persisting for quite a long time, and historically that’s supportive of increases in property values and cash flows,” he said. “So, try to buy at the front end rather than the back end.

“We’re seeing quite a lot of volatility in the share market and probably the worst area for investing when rates are falling are cash-type products, like high-interest savings accounts, long-term deposits and fixed-interest securities, unless you’re an older investor. But know that the RBA is watching the data closely and not what the government or investors want.”

Falling rates can also make it a good time to catch up, maximise super contributions and clear debt, believes Helen Baker, the financial planner and founder of On Your Own Two Feet.

The share market has also been going well, she argues, but you also have to remember that what goes down can come back up.

“Bear in mind your ability to service debt,” she said. “There are a lot of wars and issues around the world and if interest rates suddenly go up and people start losing jobs and businesses falter, then debt can become a problem.”