In the first board meeting of the year, the Reserve Bank of Australia (RBA) has increased the cash rate for the first time since 2023. Many economists predicted it would be increased in an effort to cool growing inflation. The cash rate is currently sitting at 3.85%.
Data from the ABS last week revealed inflation increased in the 12 months to December, with the trimmed mean inflation (which removes some expenses that can fluctuate a lot, such as petrol) sitting at 3.3%. This is above the board’s target range of 2-3% and triggered speculation there could be more than one increase to the cash rate this year.
Despite the growing burden on our wallets, the property market continues to thrive. Ray White revealed the national dwelling price in Australia increased around 12% in 2025 with an acceleration at the end of the year.
So why is the market remaining so hot?
The buyers driving competition
According to Loan Market data, there was an uptick in first-home buyer loan applications in October (41% increase compared to September) and December. Why? This is very likely due to the changes to the federal government’s 5% Deposit Scheme. Income caps were removed in October and property price caps increased, making it easier for first-home buyers to qualify for the scheme and purchase property with as little as a 5% deposit.
First-home buyers aside, investors also steadily increased through the year, peaking in September. This includes first-home buying investors, seeing the largest growth since July 2022.
What will 2026 bring?
Investor activity looked to decrease toward the end of 2025 and if interest rates increase, we may see this decrease continue. First-home buyers may continue to take advantage of government schemes and grants, making properties under the scheme price caps more popular and competitive.
What should you do?
Even before the cash rate decision was announced, interest rates on some loans had increased. If you already have a home loan, it is a good idea to speak to your broker to see if your rate is still competitive. If you are looking to buy, make sure you compare loans to determine the right structure for you – keeping in mind fixed rates are increasing and so if you would like a fixed loan, you may want to consider a rate lock.
What is a rate lock?
A rate lock is an optional feature that could enable you to secure a rate even if interest rates increase before your loan settles. There is usually a fee for this feature, but speak to your broker and it varies between lenders.
