Mortgages holders are set to be trapped in a nightmarish spiral back to Covid times, with the outlook for interest rates expected to remain uncertain for the rest of the year.
The Reserve Bank’s cash rate hike on Tuesday, while no surprise to markets, almost didn’t happen at all.
Just five of the monetary policy board’s nine members voted for the shift to 4.1% – a second consecutive increase that has pushed rates back to an eight-month high.
Speaking to media, governor Michele Bullock said the split vote was not around whether a hike was needed but around what the timing should be.
“I understand this is tough news for people with mortgages,” she said. “People hadn’t seen high inflation until 2022 and that gave people a taste of what happens when inflation gets a roll on.”
Inflation has been stuck well above the RBA’s 2-3% target band for more than six months. Headline inflation is sitting at 3.8% and the trimmed mean, used to help decide the cash rate, is elevated at 3.4%.
Reserve Bank governor, Michele Bullock. Picture: Hilary Wardhaugh
The escalating conflict in the Middle East has exacerbated pressures over the last two and a half weeks. Sharp spikes in global oil prices have placed significant upwards pressure on inflation and cost-of-living.
The writing was already on the wall however, with the RBA warning interest rates in Australia were likely not high enough to slow inflation following its February meeting.
“[The hike] reflects concerns about the dire state of the supply side of the Australian economy – unable to grow at or above 2% without breaking out in inflation sweats,” Deloitte Access Economics head Pradeep Philip explained.
Before the United States and Israel began coordinated attacks across Iran, the Reserve Bank had acknowledged its economic forecasts were being based on a technical assumption that the cash rate could be as high as 4.45% by mid-2028.
Disruption has affected around 15% of world oil supply. Picture: Getty
Governor Bullock reiterated this view Tuesday, stating the monetary policy board largely attributed the rate rise to domestic issues, rather than international conflict.
The RBA is setting a course for reining in the economy by using interest rates to try and better balance supply and demand over the coming months.
What borrowers don’t know is what that will mean for mortgage repayments.
“We can’t do anything about the inflation rate that is going to pop out over the next few quarters,” Ms Bullock said.
“I can’t say if this is front loading or the first hikes of many.”
| Month | Headline CPI | Trimmed mean |
| Jan 2026 | 3.8% | 3.4% |
| Dec 2025 | 3.8% | 3.3% |
| Nov 2025 | 3.4% | 3.2% |
| Oct 2025 | 3.8% | 3.3% |
Repayments to rise this month
Fixing the demand and supply issues in the economy will rely on households spending less in the coming months.
With electricity costs making winter a high-cost season already, the rate hike is set to hit borrowers directly in the pocket before March is out.
Australia’s big four banks – Westpac, National Australia Bank (NAB), Commonwealth Bank (CBA) and ANZ – have already all confirmed interest rate rises for their customers.
Homeowners with a $500,000 mortgage will now have to pay around $80 a month more in minimum payments, totalling close to $1000 over the course of a year.
Changes will flow through for CBA, ANZ and NAB mortgage holders on 27 March, while Westpac’s hike will come slightly later on 31 March.
CBA, the nation’s biggest lender, will also increase eligible variable-rate business loans by 0.25 percentage points.
Westpac will lead the big four as the most affordable lender once new rates take effect, with its lowest variable rate to sit at 5.74%.
Macquarie Bank has also confirmed it will pass on the hike, though other major lenders including ING, Bendigo and Adelaide Bank and HSBC are yet to confirm.
Government on watch
With inflation expectations barreling towards a decade-high of 5% for Australia, the RBA has also been putting the government on watch over spending.
Way back at the start of February, Ms Bullock said that government spending as a key component of aggregate demand was putting too much pressure on the economy.
Speaking on Sky News on Tuesday, treasurer Jim Chalmers said he understood public spending was part of aggregate demand issues, promising savings will be delivered in the upcoming federal budget.
“I take responsibility for my part in the fight against inflation, and inflation is too high in our economy,” he said.
Pressure is mounting on treasurer Jim Chalmers. Picture: Getty
“That was the case before the dramatic escalation of hostilities in the Middle East, and that will make this inflation challenge harder rather than easier.”
With less than eight weeks until budget day, the pressure is on Dr Chalmers to lay out a conservative and manageable plan for how the government plans to manage spending, support households, and influence inflationary pressures.
Tax reform and cost savings are crucial, Mr Philip says, along with fiscal measures that can respond to “conflict-led disruption”.
May hike awaits households
The RBA has one more cash decision up its sleeve before the budget, widely tipped to be a third hike to help close the output gap.
“As we have seen in the past two weeks, the global economic climate can shift dramatically,” CBA head of Australian economics Belinda Allen said.
“We expect the war to be months long, not weeks long and energy prices to rise from here. But so too could growth concerns and the governor several times in the press conference highlighted the risks.”
Refinancing to a different loan is an option households have while the interest rate path remains so uncertain, with many on variable rates already moving to lock in fixed options.
“The peace of mind that comes with knowing what your repayments are can be particularly appealing,” Mortgage Choice chief executive Anthony Waldron said.
Mortgage Choice chief executive Anthony Waldron. Picture: Supplied
The number of loans with a fixed portion submitted by Mortgage Choice brokers in February was up 3% on 2025 levels.
“In a rapidly changing market, the expertise of a mortgage broker is more important than ever for borrowers,” Mr Waldron said.
“A fixed rate isn't a one-size-fits-all solution, it’s a strategic decision that needs to be considered alongside your long-term plans.
“A broker will help you assess the market to ensure your home loan still aligns with your goals. Whether that means helping you find a more competitive product, or rate, or simply giving you peace of mind that your current set up is right for you.”
This article first appeared on Mortgage Choice and has been republished with permission.
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