July 2025 RBA interest rate cut could hit home buyers, retirees without mortgages

The average mortgage holder will save around $1200 a year if the RBA’s expected rate cut is passed on in full. But not all will be rejoicing, writes QIC chief economist Dr Matthew Peter.

Dr Matthew Peter is Chief Economist for QIC.

A Tuesday rate cut is in the bag, or so it seems, with financial markets pricing a 90 per cent chance that the RBA will lower the cash rate by a quarter of a per cent.

Cheering loudest for a cut will be the 35 per cent of Australian households with mortgages. For the average Queensland homeowner with a $641,000 variable rate mortgage, a 0.25 per cent rate cut would translate to an annual saving of around $1200 if banks pass on the rate cut in full.

Those looking to enter the market for the first time will rejoice. Loans to Queensland first home buyers average $546k, so a new market entrant with an average loan will enjoy an annual saving of around $1,000.

But while first home buyers will be reaping the benefit of lower interest payments on mortgages, they may be looking at higher mortgages and deposit payments if lower interest rates drive up house prices.

Since the RBA’s last rate cut in May, Brisbane house prices are already up by around 2 per cent as buyers jump back into the market.

We estimate that a three per cent increase in house prices would wipe out the benefits of 25 basis point cut by the RBA on Tuesday for the majority of first home buyers.

The Reserve Bank of Australia (RBA) is expected to cut interest rates in July 2025. Picture: Gaye Gerard

Others to benefit from a rate cut are households who derive most of their income from investment portfolios. Why so? Because lower interest rates tend to increase the capital values of investments such as shares, property and bonds.

But not all will be rejoicing. Many retiree households who are mortgage-free and rely on income from term deposits will suffer as their income falls.

Confirming our assessment of winners and losers, a recent RBA study showed those most negatively impacted by lower rates are older households, aged greater than 65 years, while those most likely to benefit are 30-54 year-olds due to their high mortgage exposure.

However, the job of the RBA is to keep inflation in check and to support employment without fear or favour of the distributional consequences of monetary policy – income distribution is the policy domain of government. It should be remembered that all Australians benefit from a stable and growing economy, which in turn is dependent on well-managed monetary policy.

Dr Matthew Peter is Chief Economist for QIC, one of Australia’s largest institutional funds managers, where he oversees global economic forecasting and research.

Originally published as July 2025 RBA interest rate cut could hit home buyers, retirees without mortgages