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Rising rates to spark mortgage stress and fire sales
Home owners and investors have been urged to reconsider their strategies, as potential RBA rate hikes may trigger mortgage stress and financial losses, forcing some borrowers to sell.
According to bRight Agent property expert Aaron Scott, a February rate hike could lead to greater mortgage stress and higher financial losses, as property owners would be forced to sell if they can’t make repayments.
"I think home owners and property investors will be waiting with bated breath when the Reserve Bank of Australia (RBA) delivers its decision next week,” Scott said.
"In a 2026 worst-case scenario, you'll see a lot of people losing money through higher interest rates, an inability to pass on higher rents, and potentially job losses too."
A rate hike has loomed over mortgage holders since late last year, with major banks anticipating an increase at the RBA’s February meeting.
Last week, data from the Australian Bureau of Statistics (ABS) showed unemployment had fallen lower than expected in December to 4.1 per cent from 4.3 per cent in November, prompting further speculation of rate hikes.
Back in July 2025, Roy Morgan found that many borrowers had taken larger mortgages as interest rates decreased, which could now bite them back if they cannot make the repayments.
The market research company's latest modelling showed that around 1.3 million Aussie mortgage holders would be at risk of mortgage stress if the RBA hikes rates by 0.25 per cent to 3.85 per cent at their next meeting.
Roy Morgan defined mortgage stress by classifying borrowers as “at risk” when their repayments exceed a set share of household income based on earnings and spending levels.
Scott said that borrowers under the most financial pressure will likely be forced to sell and might end up in negative equity, as signs of weakness in the property market started to show.
The latest Cotality data showed a 0.7 per cent rise in December nationwide, the smallest in five months, while Sydney and Melbourne declined by 0.1 per cent, signalling a soft start to 2026.
“If even a fraction of those people are forced to sell because they can't meet repayments, then you're going to see a wobbly housing market and huge financial losses right around the country.”
He said that first home buyers with a 5 per cent deposit will be the most at risk and urged them to think twice before jumping into the market.
“If you think about it, there are two really big risks when buying any property. The first is that the value of that property itself will decline, and the second is that you won’t be able to service the mortgage,” Scott said.
“With inflated national home values, rising unemployment, and more and more mechanisms to buy with a deposit as low as 5 per cent, we have the perfect storm brewing for this dangerous scenario, and so Australians should really think twice about buying right now.”
Similarly, Scott urged investors to delay portfolio expansion, noting that “2026 may be a risky year” as the market will likely continue to soften.
He said the property market slowdown was only one worry, with supply-demand gaps, uneven price growth, rising interest rates, mortgage stress, and higher selling costs all making Australian real estate a risky investment in the coming years.
“It’s dangerous to think that just because property has been hot over the past few years, that it will continue to be so over the next year or two,” Scott concluded.
