The 2027 rate curve. Where the RBA is heading and what it means for property.

The RBA cash rate trajectory across 2023-27 has shaped the most volatile property finance environment in two decades. From 0.10% in May 2022 through the 4.35% peak in late 2023, the rate held high through 2024 and most of 2025 before easing began in late 2025. The cash rate now sits at 3.25% and markets price further cuts through 2027.

For property buyers, refinancers, and investors, the rate trajectory has implications that extend beyond the headline borrowing cost. This post examines where the rate curve is heading and what the trajectory means for property decisions in 2027.

Where we are

As of mid-2027, the RBA cash rate sits at 3.25%. The trajectory:

• Late 2025: First cut from 4.35% to 4.10%
• Q1 2026: Additional cuts to 3.85%
• Q3 2026: Further easing to 3.50%
• Late 2026: 3.35%
• Q1 2027: 3.25%

Mortgage rates have followed:

• Standard variable rates: from 7.5-8.0% peak (2024) to current 6.0-6.5%
• 3-year fixed rates: from 6.5-7.0% peak to current 5.4-5.8%
• 5-year fixed rates: from 6.8-7.2% peak to current 5.7-6.1%

The mortgage market remains structurally above the cash rate by a margin that reflects bank funding costs, capital requirements, and risk premiums.

Where the curve is heading

Market pricing as of mid-2027 indicates further easing through the next 12 months:

• 3-month yield: 3.10% (implying near-term cut)
• 1-year yield: 2.85% (implying 40bp of further cuts)
• 3-year yield: 2.75% (implying continued easing then stable)
• 10-year yield: 3.45% (implying normalisation around 3-3.5%)

The market expects the terminal rate (the long-run cash rate after the current cycle) at approximately 2.75-3.00%. This represents a "neutral" rate consistent with target inflation and full employment.

What this means for borrowing capacity

The shift from 4.35% to projected 2.75% has substantial implications for borrowing capacity.

Borrowing capacity calculation

Banks assess borrowing capacity using a stress test rate (the actual rate plus a buffer, typically 3%). The stress test rate trajectory:

• Late 2023: 4.35% + 3% = 7.35% stress rate
• Mid-2025: 4.35% + 3% = 7.35%
• Late 2026: 3.50% + 3% = 6.50%
• Mid-2027: 3.25% + 3% = 6.25%
• Projected late 2027: 2.85% + 3% = 5.85%

For a borrower with $150,000 household income, the maximum borrowing has increased approximately:

• Late 2023: $720,000 (at 7.35% stress)
• Mid-2027: $850,000 (at 6.25% stress)
• Projected late 2027: $920,000 (at 5.85% stress)

The borrowing capacity increase is substantial - approximately 28% from peak to projected trough.

Implication for property prices

Increased borrowing capacity supports increased bidding capacity. In auction markets, marginal bidder capacity sets clearing prices. The rate trajectory implies upward pressure on prices, particularly in markets where credit-constrained buyers are the marginal bidder (first home buyers, mid-market families).

What this means for refinancing

For existing borrowers, the trajectory creates refinancing opportunities.

Refinancing math

A typical refinancing scenario:

• Existing loan: $600,000, 25-year term, currently at 7.0% (locked late 2023 - early 2024)
• Repayment: $4,240/month
• Refinance at 6.0%: repayment $3,860/month - saving $380/month or $4,560/year

For 5+ year remaining holdings, the refinancing benefit typically substantially exceeds the switch cost ($500-2,000 in fees).

Fixed rate strategy

The market currently prices 3-year fixed rates below variable rates (5.4-5.8% vs 6.0-6.5%). For borrowers expecting further cuts, locking in fixed rates now may forgo benefits if cuts come faster than market pricing suggests. For borrowers seeking certainty, the current fixed rate provides 50-100bp of saving immediately with rate-rise protection.

Refinancing cycle

Many borrowers are now in their second or third refinancing cycle since the 2023 peak. Each cycle typically delivers 25-75bp of saving versus the previous rate. Active management of the mortgage rate over a 5-10 year holding period typically saves $30,000-80,000 in interest.

What this means for investors

For investors, the rate trajectory affects multiple deal economics:

Gross yield vs interest rate spread

Investment property economics depend on the spread between gross rental yield and interest rate:

• 2023 peak: Sydney apartment yield 3.5%, interest 7.0% = negative 350bp spread
• 2027 mid-cycle: Sydney apartment yield 4.0% (rent growth), interest 6.0% = negative 200bp spread
• Projected late 2027: yield 4.1%, interest 5.5% = negative 140bp spread

The reduction in the negative spread improves cash flow profile substantially.

Negative gearing interaction

The 2027 negative gearing reforms (covered in a separate post) cap interest deductions against rental income for new acquisitions. Lower interest rates reduce the quantum of interest deductions, partially mitigating the new rules' impact.

Investor sentiment

Falling rates historically correlate with increased investor activity. The lending environment becomes more accommodating, the cash flow profile of investment property improves, and investor sentiment turns more constructive.

What this means for sellers

For vendors considering sale timing, the rate trajectory matters in three ways:

Buyer capacity

Lower rates increase buyer borrowing capacity, which increases the marginal bid in auction markets. Sellers in late 2027 may face more capable bidders than sellers in mid-2025 faced.

Investor competition

Lower rates and improved investor cash flow profiles bring investors back to auctions. Investor presence typically increases marginal bids.

Comparable sales reset

Each rate cut cycle resets the comparable sales benchmark upward. Properties transacting in late 2026 traded against higher rates than late 2027 sellers will face. The benchmark for what buyers will pay should reflect the current rate environment.

What this means for first home buyers

Three considerations:

Consideration 1: borrowing capacity now exceeds late-2024 capacity

For first home buyers with steady income, the current borrowing capacity is meaningfully higher than late-2024 capacity. The deposit constraint, not the borrowing capacity constraint, is now usually binding.

Consideration 2: government schemes continue

The First Home Guarantee, First Home Super Saver Scheme, and various state schemes remain. State schemes have been adjusted in some jurisdictions to reflect the post-2026 market.

Consideration 3: timing

Waiting for further rate cuts may improve borrowing capacity but in a rising-price market may not improve net affordability. The trade-off depends on local price trajectory.

What this means for refinancers locked in at the peak

For borrowers who fixed at the 2023-24 peak (6.5-7.0% fixed for 2-3 years), the fixed rate expiry is becoming relevant:

• Fixes from Q4 2023 expire Q4 2026
• Fixes from Q1 2024 expire Q1 2027
• Fixes from Q3 2024 expire Q3 2027

At fix expiry, the rollover to variable (currently 6.0-6.5%) or new fixed (5.4-5.8%) is substantially better than the existing fixed rate.

Modelling for the next 24 months

For property decisions over the next 24 months, the central scenario:

• RBA cash rate easing to 2.75-3.00% by mid-2028
• Mortgage rates following to 5.0-5.5% standard variable
• Borrowing capacity continuing to expand modestly
• Property prices continuing to recover with rate-driven tailwind
• Some downside risk if global rate moves diverge from RBA pace

The risks are two-sided. Inflation surprise could halt the easing cycle; growth surprise could accelerate it. Long-term decisions should incorporate sensitivity testing rather than relying on the central case alone.

The 2027 rate curve has meaningful implications across the property market. Reading the curve carefully and modelling its impact on your specific situation is more useful than reacting to headline rate-cut news. The trajectory matters because it changes deal math, borrowing capacity, refinancing economics, and investor returns in ways that are quantifiable.