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While the Reserve Bank of Australia left the cash rate unchanged at 4.35 per cent at the last meeting, a hotter-than-expected 3.5 per cent CPI result has put a fourth rate hike firmly on the table.
The Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Australia New Zealand Banking Group (ANZ) have all revised their forecasts from an extended hold to a 25-basis-point hike to 4.6 per cent.
While ANZ and CBA have called for the next hike to be at the RBA’s November meeting, NAB economists have said the hike could be as soon as September.
Westpac is now the only major sticking to its call of no more hikes in 2026.
First home buyers in the firing line
Speaking to Broker Daily, brokers warned that the segment of the market most affected by further hikes would be first home buyers (FHBs).
While schemes such as the 5 per cent Deposit Scheme and a budget intended to help FHBs have been introduced, activity in the segment has been dampened over the past few months.
Figures released last month from Aussie Home Loans and Loan Market Group both revealed double-digit declines in the segment, while brokers have previously flagged reduced activity.
Given the current rate, APC Home Loans founder Aimee Bergan said a further 0.25 percentage point increase would mean “reduced borrowing capacity and fewer options for some clients”, particularly those already close to their maximum capacity.
“That’s my biggest concern,” she said.
“There has been such a strong focus on helping first home buyers enter the market, but improving deposit requirements or access to government schemes only solves part of the problem. Buyers still need to demonstrate that they can service the loan, and every increase in rates makes that hurdle a little higher.”
She added that this would translate into a shift in appetite in the property market, particularly for those living in areas where incomes have struggled to keep up with prices.
“For buyers already close to their maximum capacity, their first home may need to look different,” she said.
“The house they hoped for might instead be a town house or apartment that becomes a stepping stone into the market.”
Likewise, Tristina Haines, broker at More Than Mortgages, said that another hike would compound pressure on borrowing capacity, particularly for those entering the market with small deposits.
“Even if a client can comfortably afford the actual repayment, the banks’ servicing assessments mean a higher interest rate can significantly reduce the amount they’re able to borrow. This could result in some buyers having to adjust their price expectations or contribute more equity,” Haines said.
However, Acceptance Finance CEO Jonathan Cornish said the impact wasn’t necessarily one-way, pointing to softer property prices and reduced competition in some markets.
“Many first home buyers have accepted that interest rates may remain higher for longer and are focusing less on trying to perfectly time the market and more on securing a property that meets their long-term needs,” he said.
“For some buyers, the current market offers a better opportunity to enter the market, even if the cost of finance remains elevated.”
Confidence is a casualty
While another 25-bp increase would put further pressure on borrowing capacity, brokers said the bigger concern for the housing market could be what it does to buyer confidence.
“We’ve seen considerable volatility and uncertainty around rates, inflation and the cost of living, and borrowers are looking for some sense of stability,” Bergan said.
“Another rate rise can create concern about what comes next: is this one increase, or the beginning of several?”
For FHBs in particular, Bergan said that uncertainty alone could be enough to keep some potential buyers on the sidelines.
“When people aren’t confident about what their repayments or borrowing capacity could look like in six or 12 months, some will simply wait,” she said.
“So while the repayment impact of one 0.25 per cent increase may be manageable for many borrowers, the impact on confidence could be much greater.”
Cornish also said he expects confidence to be a key casualty, saying “the biggest impact is likely to be on confidence and transaction volumes rather than prices”.
“As borrowing capacity tightens, the pool of buyers capable of purchasing at a given price point becomes smaller,” Cornish said.
“That can lead both buyers and sellers to become more cautious, slowing overall market activity.”
NC Brokers’ Naamat Chaaban said the uncertainty is already evident among borrowers.
“Some buyers are nervous about what comes next, while others simply can’t service the loan they need,” Chaaban said.
From buying to managing debt
Looking at their own pipelines, the brokers said that an additional rate hike would put pressure on new business, but also noted that attention could shift towards managing existing borrowers’ repayments.
“Any rate rise tends to generate more calls for our brokers from clients looking for reassurance that they’re still in the right product and not paying more than they need to,” Cornish said.
“If we start seeing more refinance incentives and sharper pricing, borrowers will naturally ask whether it’s time to review their current loan and potentially switch to reduce the impact of higher repayments.”
Chaaban said: “For my pipeline, this will likely mean fewer new purchases but more borrowers seeking to refinance, secure a better rate or access equity for extra cash flow.”
[Related: Young borrowers increasingly face mortgage-retirement gap]
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