The Reserve Bank of Australia has increased the cash rate by a further 25 basis points to 4.35%, marking a third consecutive rise and fully reversing the rate cuts delivered through 2025.
The decision reflects persistent inflationary pressures, now being further influenced by global factors, particularly rising fuel costs linked to ongoing conflict in the Middle East. With inflation remaining above the RBA's 2–3% target band, monetary policy is expected to remain restrictive as the Bank works to prevent price pressures from becoming entrenched.
What we're seeing in the Australian Property Market
Borrowing capacity continues to tighten
Each rate increase is incrementally reducing borrowing capacity, with lenders adjusting serviceability settings accordingly. This is placing downward pressure on purchasing power across the market, particularly as wage growth continues to lag inflation.
Buyer Demand Is Becoming More Cautious and Selective
Recent Cotality data indicates a softening in national home values, alongside more cautious buyer behaviour to high-commitment financial decisions such as property purchases. This imbalance between demand and supply is also showing up in auction clearance rates which are holding well below average, signalling more challenging selling conditions.
A shift toward affordability driven demand
Affordability challenges remain a key concern across most capital cities. Buyers are increasingly focusing on more affordable property segments, including units, smaller capitals and regional markets, where price points remain more accessible under current lending conditions.
What this means for Property Valuations
Higher interest rates are contributing to more measured market conditions emerging:
- Greater scrutiny on pricing
- Longer decision-making timeframes
- Increased sensitivity to borrowing constraints
For property valuations, this reinforces the importance of recent, comparable sales evidence and localised market analysis.
Navigating higher interest rates: considerations for Borrowers and Buyers
What borrowers should do
Here are several practical ways households can respond to higher mortgage repayments:
- Review your offset account balance
As interest rates rise, the savings generated by funds sitting in an offset account become even more valuable. Keeping surplus cash in offset can help reduce interest costs more effectively than before. - Consider making additional repayments
Paying down extra principal now can reduce the amount of interest charged over the life of the loan. Even modest additional repayments may lead to significant long-term savings at higher rates. - Assess how much buffer you have available
If your finances would be stretched by another 25-basis-point increase, it may be sensible to model refinancing options or a longer loan term sooner rather than later. - Check whether your current rate is still competitive
Following an RBA decision, lenders often become more aggressive in attracting refinance customers. This can create opportunities to negotiate a sharper discount margin or switch to a lower-rate loan.
What buyers should do
For prospective homebuyers, a more cautious approach may now be warranted:
- Update your borrowing assessment
Lending conditions have shifted since the start of 2026, meaning an earlier pre-approval may no longer reflect your current borrowing power. Checking in with your lender can provide a more accurate picture of your purchasing capacity. - Avoid borrowing at your absolute limit
Financial markets are still anticipating the possibility of another rate increase. Leaving additional breathing room in your budget can help protect against future repayment pressure. - Keep an eye on buyer-seller dynamics
Multiple consecutive rate rises often slow market momentum and widen the gap between vendor expectations and buyer willingness to pay. In the weeks ahead, softer auction results may create stronger negotiating conditions for buyers. - Obtain an independent pre‑purchase property valuation
In the current Australian property market, where interest rates remain elevated and buyer conditions are more measured, engaging a qualified property valuer for a pre‑purchase property valuation can be a critical risk‑management step. An independent valuation provides an objective assessment of market value based on recent comparable sales, local market conditions and current pricing trends. This helps buyers avoid overpaying, supports informed negotiation, and ensures purchase decisions are aligned with prevailing property prices and borrowing capacity constraints.
At WBP Group, our independent property valuations are designed to support confident, evidence‑based buying decisions across residential and commercial property markets in Australia.
Outlook
The RBA's latest move highlights that the rate cycle remains firmly tied to inflation outcomes, with the possibility of further increases through 2026.
As 2026 unfolds, housing market performance is expected to remain uneven, with conditions continuing to vary significantly across different regions and price segments.
At WBP Group, we continue to monitor how these macroeconomic shifts translate into local market performance, providing clients with accurate, evidence-based valuations to support confident decision-making in a changing environment.
If you need clarity on how current market conditions are impacting your property or portfolio, speak with the team at WBP Group.
Contact us today to arrange an independent property valuation.
