Property investors to rethink their strategies following third rate hike

The Australian Bureau of Statistics’ (ABS) March consumer price index (CPI) indicator showed annual headline inflation lifting to 4.6 per cent, up from 3.7 per cent on February’s numbers.

Despite annual trimmed holding steady at 3.3 per cent, it was not enough for the RBA to keep the cash rate unchanged.

The board said it expected inflation to remain above target for longer and saw risks skewed to the upside, prompting a more restrictive policy despite already tighter financial conditions, with the decision passed by an 8–1 majority.

RBA’s Governor General Michelle Bullock said that the third rate increase would give the board the clarity it needed ahead of future meetings, hinting that hold decisions might be on the cards.

“We’re now in a position where we’ve got space to be alert to the risks ... if the war continues.”

“This gives the board space to see how the conflict plays out and the response of Australian households and businesses to the shock,” Bullock said

Today’s increase will add around $91 to the monthly repayments on a $600,000 mortgage with 25 years remaining, bringing the three hikes to an extra $272 a month.

If the cash rate remains steady over the next 12 months, that equates to about $3,265 in additional repayments compared to a no-hike scenario in 2026.

For a $1 million mortgage, the latest increase adds about $152 a month, or $453 combined across the hikes, for a total of roughly $5,441 a year.

Compare the Market’s Economic Director David Koch said the compounded three extra rates will continue to have a huge impact on household budgets.

“If the first two didn’t, this third one will really scare people. For people who were already living up against their limits, and for recent homebuyers unfamiliar with higher rates, I think this is really going to hurt,” Koch said.

“Now rates are on the way back up, we’re likely going to see lenders tighten the amount people can borrow – and that’s going to have a big impact on aspiring borrowers who can’t stump up a big deposit.

“And anyone considering their next home purchase, whether they are upsizing or rightsizing, might have to think twice about their budget, because the repayments on average loans are potentially a lot higher.

Cotality’s Head of Research, Gerard Burg, said the RBA’s latest tightening will likely further dampen housing demand, which had already been weakening since late 2025 as affordability and serviceability pressures intensified.

He noted that national home values have been slowing, rising just 0.3 per cent in April compared to 1.3 per cent in October 2025, as higher rates and cost-of-living pressures weigh on sentiment despite ongoing undersupply.

“However, 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,” Burg said.

Domain’s Chief Residential Economist, Dr Nicola Powell, said tighter monetary policy may be needed to control inflation, but would result in weaker housing conditions and added 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.”

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.

Despite expectations of a winter slowdown following the RBA’s rate hike, LJ Hooker said rising listings could give buyers more choice, with caution likely to extend decision times but 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.

Latest Cotality data showed 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.”

On the commercial side of the market, Knight Frank Chief Economist Ben Burston said that a third consecutive rate increase signalled the RBA’s determination to lean against elevated inflation and get ahead of the spill-over effects on prices arising from the oil price spike.

He said that, for commercial markets, rental growth will be needed to drive performance in the near term.

“Higher funding costs and global uncertainty may impact trading activity in the coming months, but there is still significant demand for quality assets given improving prospects for rental uplift across multiple sectors, including office, industrial and living sectors,”

“This will act to support returns despite the latest headwinds, and we already are seeing this play out in the office market where prime rents have accelerated in Sydney, Brisbane and Adelaide, with other cities set to follow given rapidly diminishing new supply,” Burston concluded.

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