The RBA just delivered the rate drop we've been waiting for

The Reserve Bank of Australia has made a significant decision today, one that will reverberate through every corner of the housing market. The rate has just dropped to 3.6 per cent.

For weeks, homeowners, prospective buyers, and sellers have been holding their breath, waiting to see what the RBA would do with the official cash rate.

Today, we have our answer.

The interest rate cut everyone thought was coming in July has finally arrived in August, setting the stage for the spring selling season.

This is the third rate cut we've seen this year, with rates having already fallen from 4.35 per cent to 3.85 per cent. They have now dropped to 3.6 per cent.

This move is a game-changer, acting as a shot in the arm for a market that's been waiting for a signal.

If you're a buyer, this could be the incentive you've been waiting for to jump in. For sellers, it could mean more interested buyers and potentially a faster sale.

What does this decision mean for you, whether you're looking to get into the market or move on to your next home? The numbers speak for themselves, and they're worth a close look.

I believe this reduction in the cash rate is likely to encourage more vendors to list their homes for sale during spring and increase the number of buyers over the coming months.

Official interest rates had been at 4.35 per cent from November 2023 to February 2025, which was their highest level since November 2011, though historically, they were not exceptionally high.

With interest rates now at 3.6 percent, they are at their lowest point since April 2023. This is great news for borrowers.

Each time interest rates fall, borrowing capacity increases by about 2.5 per cent. This means a typical borrower can now spend 7.5 per cent more on a property than they could at the start of the year.

Another positive outcome of lower interest rates is that those with a mortgage can either reduce their monthly repayments or, by keeping their payments at the same level, pay off their principal faster and shorten the life of their mortgage.

Mortgage repayment savings following rate cuts

The RBA's recent rate reductions, from 4.35 per cent to the current 3.6 per cent, have a direct impact on your monthly mortgage repayments.

This table models the potential savings for various mortgage sizes, assuming a 30-year term.

These figures are based on principal and interest repayments and are for illustrative purposes only. They do not include any fees or charges and are based on the assumption that a lender has passed on the full rate cuts to the customer.

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I expect today's rate cut, combined with the earlier reductions and the anticipation of more to come, will boost demand for housing and encourage vendors to list their properties as we head into spring.

From here, I anticipate another 25-basis-point reduction to the cash rate in November of this year, followed by a final 25-basis-point cut in February 2026.

The future of these rate cuts really depends on the strength of the economy, the labour market, and inflation. Inflation is currently contained and below the RBA's target, and unemployment is low.

However, I've noted that employment growth has slowed and economic growth remains stubbornly weak.

I can easily see a situation where both of these situations arise. A stronger economy with low unemployment and a rise in inflation could lead to fewer rate cuts.

On the other hand, if we see a sustained increase in unemployment, continuing weak economic growth, and weaker inflation, the RBA would have a strong case for cutting rates further. The RBA has repeatedly said we're treading a narrow path, and I believe we are still on it.

If my predicted cuts come to fruition, the cash rate will settle at 3.1 per cent.

This is 125 basis points lower than the recent peak and the lowest it has been since January 2023.

Even with this reduction, interest rates would still be higher than they were during the period from December 2012 to December 2022.

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