Buying Melbourne City Apartments: What 2025–26 Interest Rate Cuts Mean

After several years of rising interest rates aimed at taming inflation, 2025 marks a clear shift in Australia’s monetary policy. For the first time in four years, the Reserve Bank of Australia is initiating a rate-cutting cycle, lowering the official cash rate.

This means buyers looking at Melbourne City Apartments for sale are entering a market with new advantages, particularly around affordability and borrowing power.

These falling rates mean better financing conditions, more favourable loan servicing ratios, and, at least in the short term, a window to buy before competition intensifies.

In this article, our experts at Melcorp Real Estate will break down what these rate cuts mean for the apartment market and how timing could impact your buying decision.

Interest Rates and the Property Market: How Are They Connected?

Interest rates directly influence borrowing costs and, in turn, buyer behavior in the property market. When the Reserve Bank of Australia (RBA) cuts the cash rate, home loan interest rates fall, reducing monthly repayments and expanding borrowing capacity for potential buyers.

For instance, following the February 2025 rate cut to 4.10% and subsequent trimming to 3.85%, borrowers at major banks gained access to loans that were 2–3% higher, which is equivalent to roughly $12,000–$20,000 more borrowing power.

The Domino Effect:

Lower repayments = greater affordability

Many buyers who were previously squeezed out may now qualify for higher-value loans or better loan-to-income ratios, creating new entrants in the market, particularly in lower-to-mid price brackets.

Increased demand = price pressure

As borrowing power increases, demand surges. Auction clearance rates in Melbourne (and Sydney) have already exceeded 70% in the days following rate cuts, pushing prices upward.

Timing

Historical data shows that capital cities such as  Melbourne are highly sensitive to rate changes. After past easing cycles (e.g., 2011, 2015, 2016, 2019), Melbourne regularly recorded stronger-than-average price gains in the months that followed.

What This Means for Melbourne City Apartments for Sale

With interest rates set to fall, buyers eyeing Melbourne City Apartments for sale are entering a market that’s likely to move fast and in a very specific direction. Here’s what you expect:

Scarcity of apartments in Melbourne

Melbourne is currently building fewer apartments than it needs. According to JLL, only 250 apartments were completed in 2025, and only 1907 are expected to be delivered by the end of the year, well below what’s needed to keep up with growing demand.

Add to that the return of international students, population growth, and other similar factors, and you’ve got a classic supply shortage.

Prices are likely to rebound in late 2025 to 2026

Right after the RBA’s first interest rate cut in February 2025, Melbourne recorded the strongest monthly price rise of any capital city. Experts expect this momentum to continue throughout 2025–26, with unit prices potentially rising by 5% or more in the next 12 months.

Apartments in prime CBD locations or those close to upcoming transport upgrades like the Metro Tunnel are especially likely to attract interest quickly.

Not all areas will have price rises at the same pace

While inner Melbourne is generally well-placed, some areas will benefit more than others. Suburbs like Elsternwick and Glen Eira, which offer quality apartments and lifestyle perks, are expected to see some of the fastest growth.

However, new developments that are oversupplied or lack strong owner-occupier appeal might not experience the same lift. 

Buyers should look beyond flashy new builds and focus on apartments with strong long-term appeal such as location, build quality, and access to amenities.

Who Will Benefit the Most From These Rate Cuts?

• First-home buyers will find it easier to get a foot in the door thanks to improved borrowing power and government support schemes (like the First Home Guarantee, kicking off again in 2026).
• Lifestyle buyers such as downsizers or city professionals will see more value in moving closer to work, culture, and dining, especially with improved transport links.
• Everyday buyers who act early in the rate-cut cycle will have more choice before the competition heats up.

Should You Buy Now or Wait? Key Considerations for 2025–26

As interest rates start falling, timing your purchase of a Melbourne City Apartment for sale becomes crucial. Below, we walk through the factors you’ll want to weigh:

Buying vs renting: What makes  sense today?

For many inner-city units in Melbourne, it’s now cheaper to buy than rent. In suburbs like Travancore, Carlton, and Docklands, buyers are seeing savings of up to $150 per week compared to renters. That’s more than $7,000 in savings per year. 

As rental demand surges and vacancy rates fall below 1.5%, rents are expected to stay on the higher end. For many, buying now means locking in stability and breaking free from relentless rental increases.

You may not need a 20% deposit

Traditionally, lenders ask for a minimum 20% deposit, but options like the First Home Guarantee (returning in 2026) allow you to buy with just 5% deposit, no lender’s mortgage insurance required.

For a $600,000 apartment, that’s $30,000 down instead of $120,000, a major difference for younger buyers or single-income earners.

Government support schemes like this are designed to remove barriers, and combined with lower interest rates, they give first-home buyers a rare chance to secure a property in the CBD before prices increase again.

Apartment prices will also react to rate cuts

Unlike detached homes, apartments, especially in premium location city buildings, respond quickly to interest rate changes. Following the RBA’s February 2025 rate cut, Melbourne’s apartment market saw its strongest monthly price rise in over a year. 

However, results vary. Quality inner-city apartments that are well-built and in good locations often appreciate faster than off-the-plan projects or oversupplied buildings.

Not all apartments will perform equally

Not every apartment is guaranteed to rise in value. Properties in oversupplied towers or with limited owner-occupier appeal may lag behind. 

On the other hand, well-built, well-located units, especially those in boutique buildings near transport links or lifestyle precincts, tend to hold value and grow more steadily.

Look for:

• Low body corporate fees
• Natural light and ventilation
• Access to rail, tram, or metro upgrades (e.g. the Metro Tunnel)

Early buyers get the best choices

Real estate often rewards those who act before the crowd. Once rates are cut further and sentiment improves, competition in the CBD apartment market is expected to increase sharply, especially as international students, renters-turned-buyers, and investors re-enter the scene.

By moving early, you may secure a better deal and more options before listings tighten and prices respond fully.

Tips for Apartment Buyers in a Falling Interest Rate Market

Falling interest rates open up more opportunities but they also bring more competition. If you’re looking to buy an apartment in Melbourne’s CBD during the 2025–26 rate-cut cycle, here’s how to make the most of it:

• Get finance pre-approved early

Lower rates increase borrowing power across the board, which means more buyers enter the market. Having your finance pre-approved now gives you an edge when properties move quickly.

• Compare loan features

Many buyers focus on rate percentages alone, but loan flexibility matters just as much. Consider offset accounts, redraw facilities, and fixed/variable split loans that allow you to adapt as the market evolves.

• Buy based on livability

Choose a property that suits your future lifestyle as well as your current finances. Think walkability, natural light, and access to green space, not just postcode popularity.

• Understand strata and ongoing costs

Strata fees, sinking funds, and building maintenance issues can impact long-term affordability. Always review the owners’ corporation documents, and check if major repairs or disputes are underway before you buy.

• Factor in future rental potential

Even if you plan to live in the apartment long-term, its rental appeal matters. High-rent potential gives you flexibility later on and improves resale value, especially in a CBD market where yield-conscious investors often drive demand.

• Don’t time the bottom, act when you’re ready

Waiting for the absolute lowest rate or perfect deal can lead to missed opportunities. Focus on value and readiness, not perfection. Remember, markets often move before headlines catch up.

Buy Smart, Invest Wisely in 2025

With interest rates falling and buyer confidence returning, now is the time to secure your place in Melbourne’s CBD property market. Do it right with a real estate partner who understands your goals and wants like Melcorp Real Estate.

We can help you find the right apartment at the right time. Contact us today to start your search!