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This week, the Reserve Bank of Australia (RBA) hiked rates for the third time in 2026, lifting the cash rate to 4.35 per cent, fully reversing the rate cuts the central bank implemented in 2025.
While the change was largely in line with expectations, a growing number of property analysts are expecting rapidly rising mortgage rates to curb housing demand and cool property price growth.
Gerard Burg, head of research and property analytics company Cotality, outlined that the rate rise would reduce the borrowing capacity of potential buyers, with households on the median income having their budgets lowered by around $18,000 (assuming average market interest rates and a 20 per cent deposit on a 30-year principal and interest loan).
Burg added that this third rate hike would likely further cool the property market, a trend that has been evident since late 2025 (when the central bank signalled its change in policy stance), particularly if more rate hikes are on the horizon.
He said: “Overall, for the housing sector, the demand side headwinds are building. Demand was already impacted by affordability and serviceability constraints prior to the earlier rate hikes in February and March.
“With housing affordability remaining a key challenge, mortgage rates up 75 basis points and higher cost of living pressures eroding household balances sheets, sentiment has dropped sharply. Even with an ongoing housing undersupply, it’s likely that market conditions will continue to moderate from here.”
Moreover, Burg added that higher interest rates could further deflect demand into the lower-value segments of the housing market, where policy support for first home buyers has seen much more competition and continued growth in home values.
As well as curbing prospective home buyer activity, existing borrowers will feel the brunt of the latest hike. Burg said the full pass-through of this rate increase would lift monthly repayments by $119 per month or $55 per fortnight (based on a $736,000 average loan size).
Similarly, chief residential economist of property listing platform Domain, Dr Nicola Powell, said while tighter monetary policy may be needed to control inflation, it would result in weaker housing conditions and add pressure on affordability, especially for first home buyers and new supply.
“We are already seeing demand soften among rate‑sensitive buyers. First home buyers, highly leveraged purchasers and debt‑dependent investors will be the first to pull back,” Powell said.
Across the housing market, Powell said that higher rates would immediately intensify existing pressures, further limiting borrowing capacity, and increasing buyer caution, especially in Sydney and Melbourne.
“Higher rates cap price growth by tightening serviceability and risk, reigniting construction cost pressures at a time when new housing supply is desperately needed,” Powell said.
Despite expectations of a winter slowdown following the RBA’s rate hike, real estate agency LJ Hooker has suggested rising listings could give buyers more choice. While added caution would likely extend decision times, it could also improve opportunities to secure the right property.
LJ Hooker’s head of research, Mathew Tiller, said borrowing capacity and confidence would tighten, but the market would see more listings and reduced buyer competition, giving purchasers greater choice and more time to decide after a period of tight stock.
The latest Cotality data shows auction clearance rates of 60 per cent in Sydney and 61.8 per cent in Melbourne, with Tiller noting that well-priced, market-ready properties are continuing to sell.
“Buyers are still out there and while it may not be a massive number that will push up prices higher, we see them turning up at auctions and inspecting open homes,” he said.
“Any moderation in price growth might almost negate the rate rise in some markets. This means that buyers with pre-approval may still be able to find something within their budget without having to go back to the bank.”
[Related: VIDEO PODCAST: Rates, risks, and the investor squeeze]
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