Homeowners warned as big banks clash over more rate cuts next year – realestate.com.au

High mortgage stress and the extreme pressure placed on households by a crippling cost-of-living crisis left the country hanging on RBA Governor Michele Bullock’s every word by 2025.

After a brutal rate hike cycle of thirteen rate hikes between 2022 and 2023, the cash rate finally started to fall from a high of 4.35 percent in February this year.

Three cuts later, the figure is now 3.60 percent, and for much of the year the conversation focused on how much further the cuts would go, rather than whether there would be cuts at all.

With inflation on the rise again, many commentators are concerned that the austerity cycle is over and we are even in danger that the RBA’s next move will be a hike.

As we prepare for a fascinating and uncertain 2026, I’ve taken a look at what the experts are predicting for interest rates over the next twelve months.

And it makes for some pretty grim reading, apart from being a beacon of hope among our leading lenders.

Three of the big four agree

The country’s biggest banks have reversed their earlier forecasts for further interest rate cuts after recent inflation data changed their minds.

ANZ was the latest of the major banks to predict that the austerity cycle was now over and that long-term cash rates would remain at 3.60 percent.

“We no longer see one definitive rate cut from the RBA in the first half of 2026 given recent inflationary pressures,” said Adam Boynton, head of Australian economics at ANZ. “Now that growth is around potential, the argument for further easing is also less clear.”

ANZ’s revised forecast saw it join the CBA and NAB in predicting cash rates will remain unchanged for the foreseeable future.

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Luci Ellis believes inflation policy is “still a bit tight”. Photo: Martin Ollman

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Only Westpac is still relatively optimistic about the cuts, predicting two more will follow in 2026 (probably May and August), taking the cash rate to 3.1 percent.

Westpac chief economist Luci Ellis told realestate.com.au she believes inflation policy is “still a bit tight”.

“We see that there is already modest softening in the labor market that is likely to continue. And if inflation plays out according to our forecasts, which have brought the average inflation trough to around 2.3%, the RBA will have to make some further cuts,” Ellis said.

“However, if we are wrong, and inflation goes according to the RBA’s forecast, then interest rates will be suspended.”

Assess expectations

A Finder survey on the 2026 cash rate trajectory found that 29 percent of experts predicted at least one rate hike in 2026.

But it appears the 35 commentators surveyed are fairly evenly split, with the same percentage predicting at least one reduction in the same period.

Finder head of consumer research Graham Cooke described the survey as “the most divided panel I have seen in years”.

“Nobody knows which way the RBA will go next,” he said. “Borrowers should be careful during the holidays. You don’t want to go into the new year with a Christmas hangover, especially if your mortgage could become more expensive.”

When asked where interest rates would be in December 2026, experts agreed.

“3.6 percent” was the short answer from AMP’s Shane Oliver.

Tim Reardon of the Housing Industry Association elaborated on this further.

“Unchanged from today,” he said. “Cash rates remain high. The economy is likely to remain strong given high levels of government spending and population growth. This will cause the CPI to rise and cash rates to contract.”

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Graham Cooke says borrowers should be careful about spending over the festive period.

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Economist Stella Huangfu of the University of Sydney predicted a “long period of stability”.

“I expect the RBA cash rate to be around 3.6 per cent in December 2026,” she said. “Inflation is only gradually easing and is still expected to hover near the top of the target band, making major cuts unlikely, but growth is also too weak to justify increases.”

Action borrowers can take

Canstar’s data insights director Sally Tindall said the uncertainty around interest rate movements means borrowers need to take steps to prepare for the year ahead.

“The RBA will not implement a rate hike for borrowers without ample warning. However, if the central bank is not on track to get inflation back within the target range as forecast, it could be forced into action,” Tindall said.

“While we wait for the RBA to make a decision, there is one lever borrowers can use now: their equity.

“Once you accumulate 40 percent equity or more, you’re suddenly a VIP, at least in the eyes of your bank. The good news is that many Australians fall into this camp.

“APRA data shows that $621 billion of home equity loans have been with the same lender for more than three years. The owners of these mortgages are likely to have built up a fair amount of equity, not only from their repayments but also from rising property prices. The irony is that they are also likely to have uncompetitive interest rates.

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Sally Tindall, director of data insights at Canstar. Photo: Tim Hunter.

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“Take 10 minutes to check your home equity. Calculate how much you still owe on your mortgage, minus this based on a current estimate of how much your property is worth and there’s your home equity.”