After the inexplicable commentary in May from the Reserve Bank about the high potential for rates to have to go higher, we saw them follow the first cut in August to the Official Cash Rate with a further 50 basis points (0.5 per cent) on October 9.

This decision was strongly supported when last Wednesday the inflation numbers came in for the September quarter and we had the headline number sitting within the Reserve Bank’s target range for the first time since March 2021 at 2.2 per cent.

This was significantly lower than previous quarters.

Council Rates

This happened despite half of that quarter’s inflation numbers being caused by the largest increase in council rates since 1990. It all but guarantees at this stage that we should see at least the same sized cut at the last cash rate review of the year on November 27.

This should provide some respite for retailers and businesses in general heading into the festive season, although a key date to watch is November 6, when we get the next unemployment update.

If this number jumps aggressively from the 4.6 per cent we saw in the June quarter, we may even see the Reserve Bank incentivised to make a 75-basis point cut at the November review.

What has transpired is significant drops in interest rates with attractive one-year pricing now available across several banks, and also significant cuts that have been made to six-month pricing. These have fallen from circa 6.85 per cent to around the 6.25-6.35 per cent region. There is very little reason to go for any rate terms longer than this with the general expectation that the cash rate will continue to drop across 2025.

Test Rates

Another point worth noting is that with the cash rate having now been cut we are seeing the test or assessment rates across banks also drop at roughly the same rate.

Where prior to the August cut, banks had been testing all existing and proposed further residential debt at rates close to 9 per cent, these now sit at or close to 8 per cent, with a strong chance of a further reduction to circa 7.5 per cent by early December.

This boosts a borrower’s capacity to access lending quickly and should result in more participation in the housing market from those previously locked out. It also provides the ability for those who could previously purchase to pay a higher amount.

While it is always hard to pick market cycles, there’s a good chance prices have bottomed out and with much lower interest rates we will see a more active property market in 2025.