RBA Holds Interest Rates at 3.85%: What This Means for Melbourne Property Market

The Reserve Bank of Australia shocked financial markets and millions of mortgage holders in July by keeping the cash rate steady at 3.85%, defying widespread expectations for a third consecutive cut. This surprise decision has significant implications for Melbourne's recovering property market.

The Surprise Decision That Divided the Board

For the first time in its history, the RBA revealed the vote split among its monetary policy board members. The decision to hold rates was made by a narrow 6-3 majority, with three members arguing for an immediate cut.

Why the Majority Chose to Wait

The six board members who voted to hold rates cited several key factors:

• Inflation concerns: June quarter CPI figures were "marginally higher than expected"
• Economic momentum: Private demand showed unexpected strength in March quarter data
• Global uncertainty: Ongoing trade tensions and policy uncertainty required caution
• Gradual approach: Three cuts in four meetings wouldn't align with their "cautious and gradual" strategy

The Dissenting Voice

The three members who favoured a cut argued that:

• Sufficient evidence already existed that inflation was on track to reach target
• Economic expansion remained "subdued" with households saving more
• Labour market momentum was showing signs of weakness
• US tariff policies would drag on global growth

Melbourne Property Market: Positioned for Recovery

Despite the rate hold disappointment, Melbourne's property market continues to show encouraging signs of recovery after a challenging 2024.

Current Market Performance

Latest Melbourne Property Data (July 2025):

• Median house price: $939,965 (+0.5% monthly)
• Median unit price: $614,689 (+0.4% monthly)
• Annual price movement: Still 4.5% below March 2022 peak
• Vacancy rates: Under 1% (historically low)

Melbourne has now posted four consecutive months of price growth in 2025, marking a significant shift from the predominantly negative performance throughout 2024.

The Silver Lining: Why Waiting Might Benefit Borrowers

While the July hold was disappointing for mortgage holders, property experts suggest it could ultimately work in their favour. Here's why:

Banks Under Greater Scrutiny

When rate cuts are spaced further apart, banks face increased public and media scrutiny to pass on the full benefit to borrowers. Historical data shows that:

• First cuts are typically passed on in full
• Rapid successive cuts often see banks retain portions of the reduction
• Spaced-out cuts generate more attention and pressure for full pass-through

Market Expectations for August

Financial markets are pricing in a near-certain rate cut at the August 12 meeting, with economists expecting:

• 0.25% cut to bring cash rate to 3.6%
• Potential for additional cuts in November
• Terminal rate forecast around 2.85-3.1%

Impact on Melbourne's Eastern Suburbs

The rate hold has had mixed effects across Melbourne's key growth areas:

Premium Eastern Suburbs Performance

Doncaster and Doncaster East continue to attract strong buyer interest despite the rate pause:

• Properties selling faster than metropolitan average
• Strong demand from families seeking quality education zones
• Infrastructure improvements supporting long-term value growth

Investment Hotspots

Areas like Templestowe and Glen Waverley remain attractive for investors:

• Rental yields holding steady despite price recovery
• Limited supply supporting capital growth potential
• Transport connectivity driving demand

Market Outlook: What's Next?

Short-term Expectations (Next 6 months)

• August rate cut: Widely expected 0.25% reduction
• Property price momentum: Continued gradual growth
• Buyer confidence: Strengthening ahead of spring selling season

Medium-term Forecast (12-24 months)

Property forecasters predict Melbourne will lead capital city growth:

Key Market Drivers Going Forward

Supporting Growth:

• Further interest rate cuts expected
• Population growth resuming
• Infrastructure investment pipeline
• Relative affordability vs Sydney

Potential Headwinds:

• Affordability constraints
• Global economic uncertainty
• Regulatory changes
• Supply increases in some segments

Strategic Opportunities for Property Buyers

The current market conditions present several opportunities:

For Homebuyers

• Reduced competition: Rate hold temporarily cooling buyer activity
• Better negotiating position: More time to secure quality properties
• Spring preparation: Position for seasonal upturn

For Investors

• Below-replacement cost: Many properties still trading under construction costs
• Rental market strength: Sub-1% vacancy rates supporting yields
• Capital growth potential: Melbourne's underperformance creating opportunity

Regional Spotlight: Where to Focus

High-Growth Potential Areas

Forest Hill and surrounding suburbs offer:

• Family-friendly environments with quality schools
• Strong transport links to CBD
• Limited development pipeline supporting scarcity value

Established Investment Zones

Bulleen continues attracting investors due to:

• Consistent rental demand
• Infrastructure improvements
• Established community amenities

Expert Recommendations

For Current Property Owners

• Refinancing opportunity: Use rate hold period to secure better deals
• Property improvements: Invest in value-adding renovations
• Market timing: Prepare for spring selling season

For Prospective Buyers

• Due diligence: Use extra time for thorough property research
• Finance preparation: Secure pre-approval ahead of rate cuts
• Location focus: Target areas with strong fundamentals

Looking Ahead: The Bigger Picture

The July rate hold, while disappointing in the short term, reflects the RBA's commitment to sustainable economic management. For Melbourne's property market, this measured approach could support:

• Sustainable growth: Avoiding boom-bust cycles
• Improved affordability: Gradual price increases allowing income catch-up
• Market stability: Reduced volatility for long-term planning

Get Expert Property Advice

Understanding how interest rate decisions affect your property goals requires local expertise. Our team provides comprehensive market analysis across Melbourne's key growth suburbs:

• Market valuations in rate-sensitive areas
• Investment strategy aligned with monetary policy cycles
• Buyer guidance for optimal timing decisions

Contact our Melbourne property experts today for personalised advice on navigating the current market conditions and positioning for future opportunities.

This analysis incorporates the latest RBA meeting minutes and market data. Property decisions should consider individual circumstances and professional advice. Market conditions can change rapidly based on economic developments.