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The Westpac–Melbourne Institute Consumer Sentiment Index found that nearly two-thirds of consumers with a view now expect mortgage rates to rise over the next 12 months, more than double the proportion recorded in September 2025.
The index surveys 1,200 adults to gauge Australians’ economic outlook across five sub-indexes: assessments of family finances compared with a year ago; expectations for family finances and the economy over the next year; expectations for the economy over the next five years; and views on whether now is a good time to buy a major household item.
Overall, the index fell 1.7 per cent to 92.9 in January, down from 94.5 in December.
Pessimists have outnumbered optimists across every component of the index for the first time since October 2024, with all sub-indexes falling below the neutral level of 100.
While confidence remains well above the extreme lows seen during the 2022–24 cost-of-living crisis, Australian consumers have entered the new year increasingly uneasy about the outlook for household finances and the broader economy in 2026.
Interest rate expectations remain the dominant driver of this deterioration in sentiment. Cash rate forecasts are split between either a rate hike or a hold at the Reserve Bank of Australia’s (RBA) next decision on 3 February, but after headline inflation for November printed at 3.4 per cent, there is little hope for a rate cut.
The mortgage rate expectation index, which tracks expectations for variable mortgage rates, rose a further 5 per cent in January, taking it to 152.8, its highest level since July 2024.
At that time, inflation was still running at 4 per cent year on year, and the Reserve Bank of Australia was openly concerned about inflation failing to return to the 2–3 per cent target range. Then, 68 per cent of consumers expected mortgage rates to rise; today, just over 64 per cent hold the same view.
“Recent strong inflation reads and an upswing in domestic spending have clearly raised concerns that inflation is not yet fully tamed,” said Westpac’s head of Australian macro-forecasting, Matthew Hassan.
“The RBA monetary policy board is sensitive to this risk and has prepared the ground for possible rate increases, should they be needed.”
Housing-related sentiment showed mixed results. The ‘time to buy a dwelling’ index rose 4 per cent to 89.6 in January, though it remains firmly in pessimistic territory overall. The improvement was concentrated among younger consumers, with sentiment rising 5.7 per cent to 103.9 for those aged 18–34.
Hassan said this suggests that the expanded Home Guarantee Scheme is providing some support for first home buyers.
National home prices rose 0.1 per cent in December and 8.6 per cent in 2025, reaching a new record high, according to the latest PropTrack Home Price Index.
State results, however, highlight ongoing affordability pressures, with home buyer sentiment markedly weaker in Queensland, Western Australia, and South Australia, where house price growth has been strongest over 2024 and 2025.
Expectations for family finances over the year ahead fell 4.5 per cent, while expectations for the economy over the next year dropped 6.5 per cent. These declines more than offset modest improvements elsewhere, including a 2.3 per cent lift in assessments of family finances compared with a year ago and small gains in longer-term economic expectations and views on whether now is a good time to buy a major household item.
Labour market expectations also softened modestly. The Unemployment Expectations Index increased 2.1 per cent to 129.4, remaining slightly above its long-run average.
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