Interest rates and the impact on property values in 2025
The Reserve Bank of Australia (RBA) has implemented a measured series of interest rate cuts in 2025, reducing the cash rate from 4.1% in January to 3.6% by November. These cuts have significantly boosted buyer confidence, particularly in Sydney and Melbourne, where mortgage rates have fallen to their lowest levels in several years. Lower borrowing costs have made property more affordable and encouraged buyers to enter the market sooner than anticipated, driving renewed momentum across both capital cities.
For property owners and investors, understanding how interest rate movements affect property values is essential for making informed decisions about refinancing, selling, or adjusting investment strategies.
How lower rates are changing buyer behaviour
With reduced interest rates, buyers now have greater purchasing power. A $20,000 increase in spending capacity for every 0.25% rate cut has sparked increased bidding at auctions and higher sale prices across Sydney and Melbourne.
Demand for both houses and units has surged, especially in inner-city and established suburbs. The shift in affordability has encouraged first-home buyers to act, while investors are also re-entering the market with renewed confidence.
Sydney's response:
After two years of hesitation, Sydney property owners and buyers have shifted from waiting to action. Year-on-year price gains of 6.3% have been recorded, with clearance rates and inquiry volumes rising significantly.
Melbourne's recovery:
Melbourne posted year-on-year price growth of 6.2%, bouncing back from a 1.9% fall in 2024. Experts now forecast a strong 6.6% increase in 2026, marking a significant catch-up after a period of weakness.
Interest rates and property prices: the direct correlation
Interest rates inversely correlate with property prices. When rates fall, borrowing becomes cheaper, which typically drives higher demand and pushes up property values.
Research shows that large capital cities like Sydney and Melbourne are particularly reactive to RBA rate changes. Every 0.25% rate cut amplifies through these markets faster than other capitals because of their larger, more interest-rate-sensitive buyer pools.
Key impacts of 2025's rate cuts include:
Increased affordability: Lower mortgage rates mean buyers can access properties they couldn't previously afford, expanding the addressable market.
Accelerated price growth: Market forecasts predicted 4.6% price growth for Sydney and 4.1% for Melbourne in 2025, up significantly from earlier predictions.
Faster sales: Properties are selling more quickly, with reduced negotiation periods and fewer days on market.
Higher clearance rates: Auction clearance rates have risen to their highest levels in over a year.
Impact on investment and refinancing
Investors are taking advantage of refinancing opportunities, reducing mortgage repayments and improving cash flow and returns. A 0.5% rate cut on a $750,000 loan can save over $3,500 in interest in the first year alone, and more than $170,000 over the life of the loan.
Homeowners are also more likely to consider renovations or upgrades, knowing their equity position has strengthened with rising property values. However, expectations between buyers and sellers have diverged—while a $20,000 spending increase per rate cut benefits buyers, sellers often expect much larger price premiums, creating ongoing tension.
For refinancing borrowers:
Owner-occupiers can reduce repayments or shorten loan terms, freeing up cash for investment or improvements.
Investors can improve portfolio returns by reducing debt servicing costs and redirecting capital.
First-home buyers may find they can borrow more with the same income, accessing better properties or locations.
Why accurate property valuations matter in a moving market
As interest rates shift and property values respond, a professional property valuation provides crucial clarity on your asset's true market worth and helps inform refinancing, selling, and investment decisions.
Professional valuations are especially important for:
Refinancing equity access
A current market valuation establishes your home's value, allowing you to refinance and access equity at the best possible loan-to-value ratio. This is particularly valuable in a rising market where lender valuations may lag behind true market movements.
Pre-sale pricing strategy
A certified property valuation anchors your sale price to recent comparable sales and current market conditions, helping you price competitively without leaving money on the table. With increased buyer competition and higher clearance rates, strategic pricing based on evidence—not optimism—is key.
CGT and tax planning
Investors selling properties in a rising market need accurate capital gains tax valuations to calculate their true tax position. A retrospective CGT valuation can establish the market value at an earlier date (e.g., when you first rented the property), which directly impacts your taxable gain.
SMSF compliance and reporting
Self-managed super fund trustees must report direct property holdings at market value each financial year. An independent valuation provides the objective evidence required by the ATO and your auditor, especially important as interest rate changes affect property values and SMSF asset allocation.
Investment portfolio review
Property investors managing multiple assets should obtain updated valuations to monitor equity growth, refinancing opportunities, and potential sale timing. Interest rate cuts often create windows of opportunity for selling or consolidating portfolios.
Our property valuation services
Our certified valuers provide API-accredited reports tailored to the Sydney and Melbourne property markets, reflecting current interest rate conditions and local market dynamics. We specialise in:
Pre-purchase valuations to ensure you don't overpay in a competitive bidding environment
Pre-sale valuations to support strategic pricing and faster transactions
Capital Gains Tax valuations (current and retrospective) for accurate tax reporting
Refinancing valuations to access equity at the right loan-to-value ratio
SMSF valuations to meet annual reporting and compliance requirements
Stamp duty valuations for transfers and estate matters
With interest rates continuing to shape buyer behaviour and property values, now is the ideal time to review your property's current market position with a professional valuation.
