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Fears that the central bank would hike the cash rate have been confirmed, after the board decided to raise the official cash rate by 0.25 percentage points to 4.6 per cent, the highest level in 15 years.
The board’s decision was unanimous.
The increase marks the fourth rate hike this year, as the Reserve Bank of Australia (RBA) continues to grapple with underlying inflation of 3.6 per cent at the last reading, stubbornly above its target range of 2–3 per cent.
The RBA said the decision was motivated by “further disruptions to global oil supply”, which had been “partially been passed through to prices of other goods and services”.
Explicitly not ruling out further hikes, the board said: “Inflation is still too high and the board judged that, in light of recent developments, a further tightening in financial conditions is warranted to support a return of inflation to target in a reasonable period.”
Expectations of a rate rise have gathered pace in recent months, with all four major banks forecasting an increase ahead of today’s announcement.
Australia New Zealand Banking Group (ANZ) has also forecast a further hike in November, which would take the cash rate even higher as the RBA continues its efforts to bring inflation under control.
Major banks agree that rates will remain elevated for much of 2027 before gradually easing.
The decision comes during a tricky time for Australia’s housing market, with mortgage applications plummeting, borrower confidence waning and brokers reporting reduced activity.
Borrowing capacity under pressure, particularly for FHBs
The Mortgage and Finance Association of Australia (MFAA) noted that a rise of 0.25 percentage points would add close to $100 to monthly repayments on a $600,000 loan if passed on in full. It would also reduce the same household’s borrowing capacity by around $13,000.
Meanwhile, data company Cotality has estimated that the cumulative impact of the four rate hikes since February has reduced borrowing capacity by almost $90,000, equivalent to around a 9 per cent decline in purchasing power.
While house prices have been falling, particularly at the higher end of the market, brokers have told Broker Daily that the impact on serviceability has mostly outweighed any potential gains from lower prices.
Sarah Smelt, director of Finance Society, told Broker Daily that borrowing capacity had become the major constraint for her clients, echoing findings from Macquarie Bank.
“A small movement in rates can make a pretty big difference to what someone can actually spend, especially when they were already close to their maximum,” she said.
“I’m encouraging buyers to work backwards from their borrowing capacity rather than forwards from a property listing. Falling prices can absolutely help, but a property being cheaper doesn’t necessarily mean it has suddenly become easier to buy if your borrowing capacity has also dropped.”
Alex Veljancevski, founder of Eventus Financial, said borrowers were feeling the cumulative impact of multiple rate rises throughout the year, combined with other constraints such as the 3 per cent serviceability buffer mandated by the Australian Prudential Regulation Authority.
“First home buyers have now been hit with four rate rises since February. Even if their income, expenses and deposit haven’t changed, the maximum amount a lender is prepared to give them may have fallen considerably,” Veljancevski said.
“That’s where the cumulative impact becomes much more significant.
“We’re no longer talking about one 25-basis-point increase. Four rate rises can add up to a substantial reduction in how much a first home buyer is able to borrow.”
Similarly, Angus Gilfillan, CEO of Finspo, said the rate rise was significant for what had come before it.
“On a $750k loan, today’s rise adds about $1,450 a year to repayments and knocks borrowing capacity down by a bit over 2 per cent.
“The bigger issue is that this is the fourth increase this year. For that same borrower, repayments are now roughly $5,750 a year higher than they were in January, and borrowing power is down close to 9 per cent.
“That’s a real shift for people already paying a mortgage, and for anyone trying to buy.”
He added that this was changing the conversation on property.
“The chat is less about stretching for the biggest possible loan and more about being ready,” he said.
“Buyers need to know their numbers, keep a tight handle on expenses, and have their finance sorted so they can move when the right place comes up.”
Budget to blame?
Veljancevski also blamed budget changes to tax settings, which he said had pushed investors further into affordable suburbs to compete with FHBs.
“First home buyers could potentially be squeezed from both directions,” Veljancevski 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.”
Other brokers have also outlined to Broker Daily the effects of the federal budget on the current mortgage market and rate environment.
Brokers urged to focus on advice as rate uncertainty builds
Broker coach Jason Back has urged mortgage brokers to strengthen client relationships and broaden their services as rising rate expectations and cost-of-living pressures threaten to test the industry.
While broker share has recently hit a new record, the mortgage market is softening. 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.
With shifting rate expectations, sticky inflation and cost-of-living pressures weighing on confidence, Back said the current environment was a reminder that brokers’ value extended beyond securing finance.
“Right now I think brokers need to be asking the question: what business are they in?” he said.
“If they’re in the advice business, then interest rates going up or interest rates going down is a good thing, because it means that people will be seeking counsel. And that’s what our job is. Our job is to provide advice on debt structure and strategy.”
Indeed, Smelt said her latest first home buyer seminar had attracted its highest turnout to date, suggesting the skills of brokers were still in demand.
“Buyers haven’t disappeared. If anything, I think they’re trying to educate themselves more before they jump in,” she said.
“For brokers, I think it moves the conversation even further away from just ‘Who has the cheapest rate?’ and towards the big picture. Can the client service it? Is the loan structured properly? Does the lender policy suit them? And does the loan still work for what they’re actually trying to achieve?
“I think our knowledge in particular is needed more than ever before.”
Back added that brokerages heavily reliant on a single market or borrower segment could face greater challenges as conditions changed. Instead, he said businesses with strong existing client relationships and a broader range of services would be better placed to navigate the cycle.
“Those brokerages that are set up well, those that have got great relationships with their existing clients … those that are in multiple markets, they don’t just service one niche, those that are thinking about how they can increase their scope of support to their clients through diversification, those are the ones going to thrive through this time.
“Once the tide recedes, you’re going to start seeing what the quality of that book actually looks like.”
[Related: Business loan demand defies asset finance slump]
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