Loan Market sees spike in pre-approvals amid rate cut expectations

Borrowers move early as confidence grows in interest rate stability

Loan Market sees spike in pre-approvals amid rate cut expectations

Finance brokerage Loan Market has reported a 30% increase in pre-approval applications at the start of 2025 compared to the same period last year, as homebuyers anticipated a cash rate cut by the Reserve Bank of Australia (RBA) in February.

Borrower activity began picking up in late 2024, driven by expectations that the RBA would lower rates for the first time in more than four years. Loan Market’s pre-approvals rose 46% year-on-year in January, followed by an 18% increase in February.

Loan Market chief executive David McQueen (pictured above) said the rise in demand reflected growing confidence that interest rates had peaked.

“Underlying inflation was a touch higher than the RBA’s 2-3% target range when the RBA met last month, but headline inflation was comfortably within the band,” McQueen said. “Other economic indicators also pointed to a rate cut. Consumers have tightened their spending and there’s growing confidence in the direction of interest rates.”

For a single borrower earning $90,000 annually with no dependents and average expenses, the lower cash rate increased borrowing capacity by around $12,000, from $477,000 to $489,000, on a standard 30-year owner-occupier loan.

However, McQueen noted that confidence in rate stability, rather than increased borrowing power, was the key driver behind the rise in pre-approvals.

“Borrowers can now see a ceiling in their repayments and have more confidence in their real estate hunts,” he said.

Property network Ray White analysed past rate cuts since 2011 and found that when the RBA reduced rates after at least six months of no movement, home prices in Sydney and Melbourne increased by an average of 1% in the following month.

“If someone is wanting to buy soon, they’re best to understand how much they can borrow and get their loan pre-approved with their broker,” McQueen said.

Australia’s major banks have varying forecasts for future cash rate movements. NAB expects the RBA to cut rates four more times, bringing the OCR to 3.1% by February 2026. Commonwealth Bank and Westpac both predict the rate will drop to 3.35% by the end of the year, while ANZ forecasts just one additional cut to 3.85%.

Despite the February rate cut, the RBA has signalled caution about further cash rate reductions. The central bank’s next policy meeting is scheduled for April 1.

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