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Despite a rate hold featuring in all the major banks’ forecasts just months ago, the decision facing the Reserve Bank of Australia (RBA) today has become more challenging.
Underlying inflation remains at 3.6 per cent in the latest reading, well above the RBA’s target range of 2–3 per cent. The labour market remains tight enough to contribute to inflation, while the war in the Middle East continues to push up oil prices and the cost of other goods and services.
Consensus has therefore shifted towards a rate hike.
All four major banks, alongside several non-major lenders, have updated their forecasts. While the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and Westpac are predicting a 0.25 percentage point increase today (29 September), Australia and New Zealand Banking Group (ANZ) is also forecasting a second hike of the same size in November.
If the RBA lifts rates, the cash rate will reach its highest level since November 2011. A second hike would take it to its highest level since November 2008.
Many banks have already started moving their fixed rates in anticipation of a fourth rate hike this year, while brokers have told Broker Daily that the prospect of tighter monetary policy is enough to dent buyer confidence, particularly among first home buyers.
Broker Daily has also previously reported on how quickly lenders pass on rate hikes compared with rate cuts.
Value proposition is everything
Finsure CEO Simon Bednar said that, regardless of the outcome of the RBA’s meeting, borrowers were facing a longer period of potential pain.
“I think the important factor coming off the back of this week, regardless of whether it’s a hold or increase decision, is that Australian borrowers are likely to be dealing with a higher-rate environment for longer, putting additional pressure on household budgets and borrowing capacity,” Bednar said.
That pressure, combined with other factors, is weighing on mortgage demand. According to credit reporting bureau Equifax, overall mortgage demand fell 14.1 per cent year on year in August 2026, marking a fifth consecutive monthly decline.
The downturn has not been felt evenly across borrower segments or regions, either.
The ACT recorded the sharpest fall, with demand down 17.6 per cent, followed by New South Wales at 15.9 per cent. Demand among first home buyers (FHBs) fell 20.1 per cent.
Bednar said that decline was hitting brokers from two directions: weaker demand and increased competition from banks.
“Brokers are experiencing heightened competition from bank proprietary channels, with the mortgage industry on notice that banks are wanting to increase their proprietary flows,” he said.
“In a higher-rate environment, that can create an increasingly unbalanced playing field for mortgage brokers who are competing for the same customer.”
Bednar said the environment would distinguish brokers who had maintained strong client relationships from those who had not.
“Brokers cannot afford to only be present when a customer is ready to refinance or purchase a property.
“They need to remain close to their customers throughout the life of the loan, checking in, understanding how their circumstances are changing and making sure they continue to have the right solution.”
FHBs hit hardest
Equifax’s data shows that first home buyers have pulled back sharply in recent months.
Brokers have recently told Broker Daily that, despite falling prices, eroding serviceability is gradually shrinking the window for first home buyers to enter the market, even when using a scheme such as the 5 per cent Deposit Scheme.
The MFAA said a 0.25 percentage point rate rise, if passed on in full, would add close to $100 to monthly repayments on a $600,000 loan. It would also reduce the same household’s borrowing capacity by around $13,000.
Research previously published by the RBA found that a 50-basis-point increase in the rate used to assess mortgage serviceability can reduce maximum loan sizes by up to 5 per cent.
“We’re back in some of the toughest borrowing conditions we’ve seen, with rates around their recent peaks and living expenses and HEM also increasing,” Samantha Harvey, senior mobile broker for Aussie, told Broker Daily.
“A first home buyer can be confident, have saved their deposit and be ready to act, but ultimately, the numbers still have to work.
“A good example is a FHB couple I’ve been helping throughout the year. Rate increases initially made borrowing tougher, but a short window of opportunity then opened up. More properties came within their affordable range heading into spring, and it felt like we were finally getting somewhere.
“Now, with potential rate increases in sight and borrowing capacity under pressure again, we’re back to fighting that maximum purchase price.”
Budget to blame?
Eventus Financial director Alex Veljancevski said the federal Budget was also affecting first home buyers, with investors facing tighter constraints increasingly focusing on lower-priced properties where the numbers stacked up.
“First home buyers could potentially be squeezed from both directions,” he said.
“Higher interest rates and servicing requirements may reduce how much they can borrow, while investors with tighter budgets may increasingly compete for the same lower-priced homes, apartments and townhouses.
“So a first home buyer with reduced borrowing capacity may not just have a smaller budget to work with. They may also have a smaller pool of suitable properties available within that budget.”
Evolve Lending and Finance managing director Mark Stevenson questioned whether a rate hike would subdue inflation, describing it as a “brake on one wheel”.
“The government has far more tools than the Reserve Bank to manage demand, and in May it pulled them in the wrong direction by raising taxes on property investors and lifting spending in the same Budget,” he said.
“Raising taxes and raising spending at the same time is the worst combination you can hand a mortgage holder: they pay the higher tax, they pay the higher repayments, and the inflation they were promised relief from is still there.”
For existing borrowers, Home Loan Experts senior mortgage broker Jonathan Preston said there were several options to consider if rates rise.
“If rates do go up, borrowers should review how their new repayments look relative to their budget and decide if they can withstand potential further rate hikes if they remain on variable.
“If they are at risk of being in cashflow difficulty, then they may need to consider fixing part of the loan or restructuring, potentially to interest only depending on their circumstances, or even extending the loan term back to 30 years to reduce repayment minimums.”
[Related: Westpac forecasts slump in investor activity following budget]
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