Australia’s monetary landscape has changed dramatically over the past few years. From May 2022 to November 2023, the Reserve Bank of Australia (RBA) increased the official cash rate from 0.10 percent to 4.35 percent. This marked the most aggressive tightening cycle in over thirty years and was primarily driven by the need to curb persistently high inflation following the COVID-era stimulus and global supply disruptions.

With an academic background in economics and experience in the mortgage industry, I’ve observed how these policy changes have impacted borrowers firsthand. The effects have been complex and uneven, but their implications for households, property markets, and lending behaviour are significant and still unfolding.

The immediate effect on borrowers

When the cash rate increases, the cost of funding for banks rises, and this is passed on to consumers through higher variable mortgage rates. Many borrowers who locked in ultra-low fixed rates during 2020 and 2021 found themselves hitting a ‘refinancing cliff’ in 2023 and 2024, rolling into variable rates that often exceeded 6 percent. For a typical $600,000 loan, this meant monthly repayments rising by over $1,200.

This kind of shock to household budgets doesn’t just tighten spending. It also affects borrowing power. The amount someone can borrow on a given income has fallen by as much as 30 percent compared to 2021, a shift that has reshaped demand across both the owner-occupier and investor segments.

How the market has responded

Throughout 2024 and into 2025, inflation has moderated, and the RBA has begun signalling easing in rate hikes. Although the cash rate remains elevated, forward guidance has become more neutral, and the markets have begun pricing in the possibility of more rate cuts in the coming months and into 2026.

In response, some lenders have started to reduce fixed-rate pricing slightly, particularly for terms beyond two years. This reflects a view that wholesale funding conditions may ease and that the peak in interest rates has likely passed. However, variable rates remain high, and policy uncertainty persists.

Broader economic impacts

From a macroeconomic perspective, the RBA’s actions have achieved part of their objective. Inflation has cooled, and the labour market has softened slightly, although wage growth remains strong in some sectors. Household consumption has slowed, and the savings buffer built up during COVID has been largely eroded.

The property market has shown resilience in some capital cities, driven by low supply and high migration, but regional areas and outer-suburban markets have felt the pinch. Mortgage arrears have risen modestly, and stress is increasingly concentrated among newer borrowers and households with low equity.

What should borrowers be doing now?

This is not a moment to take a passive approach to your mortgage. With the rate cycle potentially turning, there may be opportunities to restructure your loan, secure a more competitive rate, or refinance to better terms.

However, the decision to refinance or fix your rate should not be based on speculation about where rates are headed. It should reflect your risk tolerance, cash flow needs, and broader financial goals. The difference between acting early and waiting too long can be thousands of dollars over the life of your loan.

How a broker can help

Navigating interest rate cycles requires more than comparing rates online. A broker can help you evaluate your current loan, model different repayment scenarios, understand your refinance costs and benefits, and identify lenders whose policies align with your circumstances. We translate macroeconomic signals into practical, actionable advice that can put you in a stronger position over the long term.

Final thought

The RBA’s hiking cycle is nearing its end, but its effects will be felt for years. As we enter a period of gradual easing, borrowers have an opportunity to reassess their strategy and take back control. If you’re uncertain about where you stand or what your next move should be, now is the right time to speak with a broker who understands both the economy and the lending landscape.

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