Australia’s property market is buzzing again, and this time, it’s being fuelled by a sharp rise in borrowing power. According to the latest ABS Lending Indicator data, compiled by Canstar, the average new owner-occupier loan size has hit a record $678,000, an $18,000 increase in just three months. That’s the equivalent of an extra $198 a day in borrowing capacity over the June quarter. But before you get swept up in the excitement, here’s what the numbers are really telling us, and why smart, strategic buyers are approaching this moment with a balance of optimism and caution.
Loan Sizes Hit Record Highs

NSW continues to lead the nation with the largest average loan size at $816,000. Western Australia saw the fastest growth, rising 4% to $620,000, while Victoria, Queensland, and South Australia all hit new record highs. These trends point to stronger demand and fiercer competition across both auctions and private sales. The rise in loan applications also suggests many homeowners have built significant equity since the sharp growth of 2021 and are now looking to capitalise on that increased value.

The key driver? Interest rate cuts.

The RBA’s rate cuts in February, May, and most recently August have given buyers a noticeable lift in borrowing capacity. Each 0.25% reduction adds around $12,000 to the maximum a person on the average full-time wage can borrow, according to Canstar. On its own, that’s not game-changing but across the last three cuts, it represents roughly $35,000 in additional buying power. For buyers, that can mean the difference between securing a property in a preferred suburb or needing to compromise. For investors, it can open doors to higher-quality assets or diversify into an additional market. This shift is already showing up in buyer behaviour: With borrowing conditions easing, more first-home buyers are entering the market, reflected in the 5.7% jump in loan growth. Existing homeowners upgrading their properties are increasingly active (+4.4%), while investors are slowly returning (+1.4%). Together, they’re expanding the pool of active buyers. For anyone looking to purchase, this means: you can likely borrow (a, bid) more than before. But so can everyone else, so expect prices to rise and competition to intensify.

The graph below illustrates how recent and forecast RBA rate cuts are expected to lift borrowing power for the average wage earner. After the February, May, and August cuts, borrowing capacity has already risen by around $35,000. If Westpac’s forecast of three further cuts eventuates, the average buyer could see their maximum borrowing capacity increase even further, climbing by more than $70,000 in total.

How RBA Rate Cuts Boost Borrowing Power for the Average Earner

Source: Canstar.com.au

Notes: Figures based on the estimated maximum borrowing capacity of someone on the average full-time wage after the February, May, and August rate cuts, plus three additional cuts as forecast by Westpac.

Why More Borrowing Power Doesn’t Always Mean Borrowing More

When interest rates fall, the market responds quickly. Buyers find they can borrow more, which in competitive areas often leads to stronger offers and faster sales. However, a higher borrowing limit doesn’t always translate to the right financial decision. A home loan can span up to 30 years, and during that time interest rates can rise, markets can shift, and personal circumstances can change. Choosing a loan size that you can manage comfortably under less favourable conditions, is key to protecting your financial position. A good rule of thumb is to check what your repayments would be if rates were around 3% higher than they are today. This creates a buffer, helping you navigate market changes with confidence.

Smart property investing is about calculated, sustainable choices that protect your finances and position you for long-term success, not simply stretching to the maximum the bank will lend.

Listings Remain Short Supply

While demand is heating up, supply levels remain historically tight. In June, only 33,159 new properties were advertised for sale nationally over the four weeks to June 29,  down 11.7% year-on-year and 9.2% below the five-year average. This is the lowest new listing flow for this time of year since 2020. Total for-sale listings also dropped to 127,020, sitting 16.7% below the five-year average. In plain terms? We’re in a seller’s market. Limited supply and strong buyer demand are creating competitive conditions especially for high-quality, well-located properties.

House-Unit Price Gap Hits Record High

Over the three months to July, prices climbed 1.8% - the biggest quarterly jump in a year. Annual growth also picked up to 3.7%, marking the first time in more than a year that the pace of growth has increased. The gap between house and unit prices has hit a record high. Across the combined capitals, houses now cost 48% more than units - around $339,000 extra on average. In Sydney, the difference is even greater at 75.7%, which is worth factoring in when weighing capital growth potential against rental yield.

Darwin led the way for quarterly growth with prices up 5.6%, followed by Perth (+2.6%) and Brisbane (+2.3%). Properties are taking slightly longer to sell at an average of 35 days, but many sellers are offering smaller discounts, showing strong buyer competition for well-priced homes.

Auction activity is also healthy, with nearly 7 in 10 properties selling under the hammer in the past month, led by Sydney at 69.6%. Meanwhile, rental yields have edged down slightly from 3.71% in April to 3.68% in July, as property prices rise faster than rents in some areas.

Rental Growth Ticks Up for the First Time in Two Years

For the first time in more than two years, annual rental growth across Australia’s capital cities has turned upward, according to Cotality’s August Monthly Housing data. The rental value index lifted from 2.7% in June to 3.0% in July, with Sydney and Brisbane leading the momentum. In both cities, the growth is being driven by the unit market, where vacancy rates remain critically tight.

Why this matters for investors

• Rental yields are strengthening as rents climb, improving cash flow in already undersupplied markets.

• Rising rents also add to housing inflation, a metric the RBA monitors closely.

• If inflationary pressures build, they could slow the pace or scale of future rate cuts, directly influencing borrowing conditions.

In short, tighter rental markets are creating opportunities for investors, but they’re also shaping the interest rate path ahead.

Source: Cotality Monthly Housing Chart Pack, August 2025

Looking Ahead: The Housing Market Outlook

The market outlook heading into late 2025 is cautiously optimistic.

Positive factors include:

• Lower interest rates boosting borrowing power

• Improved buyer confidence

• Persistently low housing supply, with new builds slowed by high construction costs and project delays

Challenges remain:

• Affordability is stretched, with the national dwelling value-to-income ratio sitting near record highs at 7.9

• Household debt remains elevated

• Global uncertainties and slower population growth could weigh on demand

The most likely scenario? Gradual, sustainable growth rather than dramatic surges.

Key Considerations For Investors

If you’re looking to buy in the current market:

• Invest with insight, not impulse - Use data to identify markets with the strongest long-term growth potential.

• Plan for rate shifts - Choose a loan you can comfortably manage, even if rates rise.

• Expect competition - More active buyers mean faster sales and stronger offers.

Think long-term - The best results come from holding quality assets through multiple cycles.

Our Final Word

At The Investors Agency, we know every investor is different. That’s why we start by understanding your goals, risk profile, and comfort level.

Using Crystal, our Property Market Predictive Powerhouse, we identify markets about to surge and avoid those losing momentum. Combined with exclusive off-market opportunities, this ensures you secure the right property, in the right place, at the right time.

Our mission is simple: to cut through the noise and help you make confident, data-backed decisions that grow your portfolio, maximise returns, and move you closer to financial freedom.