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Just months ago, in October, markets were pricing in a roughly 70 per cent chance of a rate cut. However, the Reserve Bank of Australia (RBA) has now delivered its second consecutive 25-basis-point increase, lifting the official cash rate from 3.85 per cent to 4.1 per cent.
The back-to-back hikes mark the first consecutive adjustment since the central bank reduced the cash rate to 3.60 per cent in August 2025.
The decision was split, with five voting to increase and four opting to leave the rate unchanged.
The move reflects a combination of persistent inflationary pressures, a labour market that has remained tighter than expected, and ongoing global volatility contributing to elevated costs.
Commenting on the decision, a spokesperson for the RBA said: “A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025. While part of the pick-up in inflation is assessed to reflect temporary factors, the Board judged that the labour market has tightened a little recently and capacity pressures are slightly greater than previously assessed. Developments in the Middle East remain highly uncertain, but under a wide range of possible scenarios could add to global and domestic inflation.
“In light of these considerations, the Board judged that inflation is likely to remain above target for some time and that the risks have tilted further to the upside, including to inflation expectations. It was therefore appropriate to increase the cash rate target.”
As of January 2026, Australia’s annual inflation rate remained at 3.8 per cent, still above the RBA’s 2–3 per cent target range. Trimmed mean inflation also edged higher to 3.4 per cent, up from 3.3 per cent in the 12 months to December.
Housing (+6.8 per cent) and food (+3.1 per cent) continue to be key contributors, while services inflation sits at 3.9 per cent and goods inflation has accelerated to 3.8 per cent, driven in part by rising electricity prices.
Looking ahead, further tightening may be on the horizon. All four major banks are forecasting an additional 25-bp increase at the RBA’s next meeting in May, which would take the cash rate to 4.35 per cent.
How brokers are responding
While the latest rate hike was widely anticipated, brokers say it is already reshaping conversations with clients, particularly around borrowing capacity, buffers, and loan structuring.
For many, the immediate impact is being felt through reduced serviceability, with first home buyers among the most exposed.
Nirayu Shakya, broker at Home Loan Experts, said rising assessment rates are beginning to limit what borrowers can afford.
“Assessment rates move up with each hike, which directly reduces borrowing power. Buyers who were borderline approved at 3.85 per cent may find their capacity shrinks at 4.10 per cent,” Shakya said.
“For some, this means adjusting expectations on purchase price or location.”
Shakya added that loan structuring is also shifting, with more clients considering fixed-rate options to manage uncertainty.
“I’m now including fixed rate products in all my recommendations so clients can compare directly with current variable rates. Where clients are interested, I’m recommending 1–2 year fixed terms long enough to provide certainty through the current cycle, short enough to avoid being locked in if rates eventually come back down,” Shakya said.
Similarly, Finni Mortgages principal Eva Loisance said many first home buyers are entering the market with minimal deposits, often after struggling to save while renting.
However, she warned that while many borrowers may be able to absorb one or two rate hikes, others are far more vulnerable.
“There will always be some borrowers who are already stretched... if rates increase by 0.25 per cent and then again by another 0.25 per cent, that could add a few hundred dollars to monthly repayments – which is significant if they’re already under pressure,” Loisance said.
Despite this, Loisance noted that demand from first home buyers is unlikely to disappear.
“I don’t think the prospect of a rate hike would have discouraged me from wanting to buy. It’s not a decision you make in a month or two – it takes time… if that’s what stops people from buying their home, that’s quite sad,” Loisance said.
Costa Arvanitopoulos, also from Finni Mortgages, said that while borrowers are assessed with a 3 per cent buffer, real-world spending pressures are becoming more relevant.
“On paper they should be able to afford it… but it comes down to lifestyle and where people spend money,” he said.
Melanie Smith, franchisee for Aussie, Windsor, added that brokers are increasingly focusing on contingency planning, particularly for clients borrowing near their limits.
“We are talking about fixing a portion and doing the budget based on a 0.5 per cent increase,” she said.
“I have also discussed making sure that people have a buffer and have a back up plan.”
She noted that while serviceability buffers are built into lending, they do not always reflect day-to-day cost pressures.
“I do always mention that we are assessing with the 3 per cent buffer to ensure that these rate rises are already factored in before it officially gets out of control, but for people who are finding that groceries and fuel is killing the cash flow, that doesn’t really mean that much,” Smith said.
Chris Dodson, director at Mortgages Plus, said the pace of recent rate movements is adding to borrower strain.
“Another hike means back-to-back increases. That is difficult for consumers to absorb, especially given that fuel costs are already rising,” he said.
In response, Dodson said he has been actively reviewing client loans to ensure they remain competitive and emphasising that core advice remains unchanged.
“I’ve spent the week repricing my clients’ loans to make sure they are on the best possible rates. Every bit counts,” Dodson said.
“Borrow within your comfort zone, keep a buffer, and structure the loan properly rather than trying to guess where the cash rate will land.”
Differences for investors
While owner-occupiers are feeling the immediate pressure of higher rates, brokers say investors are taking a more strategic and long-term view.
Ajar Rajbhandari, mortgage broker at Home Loan Experts, said the focus has shifted towards aligning loan structures with client goals rather than reacting to rate movements.
“The rate forecast doesn’t dictate my recommendation… it depends on the client’s plan and objectives,” he said.
“What has changed is the conversations – there are more discussions around what a hike might look like in dollar terms.”
Rajbhandari noted that some investors are opting for split or fixed-rate strategies to manage cash flow, while maintaining flexibility.
“It’s about matching the product to the goal, not reacting to the headline,” Rajbhandari said.
He added that investors with long-term holding strategies are increasingly locking in shorter-term fixed rates.
“Those with a long-term plan are locking in 1–2 year fixed rates to protect cash flow while rates are elevated,” Rajbhandari said.
Loisance said investor activity remains resilient, although borrowing capacity constraints are starting to shape behaviour.
“I think investors… that’s not typically something that stops them. The only difference is the borrowing capacity will reduce,” she said.
She noted that this is increasing competition in more affordable segments of the market.
“That’s where it gets tricky… the target market is the same as first home buyers… and that’s where a lot of competition is going to happen,” she said.
Refinancing shifts
Rebecca Jarrett-Dalton, mortgage broker and founder of Two Red Shoes, said the conversation around refinancing has evolved significantly in the current environment.
“Refinancing is shifting from a ‘saving’ conversation to a ‘cash flow’ conversation,” she said.
“While we only recommend moving if it genuinely saves the client money, we are now seeing more people look at refinancing to fix or extend their loan terms.”
Jarrett-Dalton noted that while extending loan terms may not be optimal over the long term, it is becoming a necessary tool for some households under pressure. However, she warned that tightening serviceability conditions are limiting options for some borrowers.
“It’s not mathematically ideal because you pay more over the life of the loan, but when your back is against the wall, stretching the term is a valid tool to breathe some life back into the household budget,” Jarrett-Dalton said.
“With the 3 per cent serviceability buffer still in place, the window to switch is closing for many. If you wait too long, you might find yourself ‘locked in’ to your current lender.”
Similarly, Rajbhandari, mortgage broker at Home Loan Experts, said a sense of urgency is emerging among refinancers, particularly those who have not reviewed their loans recently.
“Refinancers are seeing urgency. Many borrowers who benefited from the cuts in early to mid-2025 haven’t reviewed their rate since,” he said.
“With lenders repricing independently of the RBA, there’s a growing gap between competitive rates and what some borrowers are sitting on.
“That gap is costing them.”
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