Borrowers could face $500 monthly repayment rise
A bank economist has forecast two further Reserve Bank of Australia (RBA) rate increases that would push the cash rate to a peak of 4.85%, adding nearly $500 a month to repayments for borrowers with $600,000 outstanding since the start of the year.
"The RBA has raised rates three times back to their prior 2023 cycle high," noted Shane Oliver (pictured top), chief economist at AMP. "While it's likely to leave rates on hold this month, we expect another hike in August."
The forecast comes alongside a warning that Australia may be approaching its first sustained national home price decline in years. Oliver projects a 1% fall in average national prices this year, followed by a further 5% drop across 2026–27.
"After 8.9% growth in 2025, we now anticipate a fall in national average home prices of around 1% this year and 5% over 2026–27," he said.
Oliver attributes the shift to the unwinding of what he describes as a housing "super cycle" — a 20- to 40-year period of sustained price growth driven by falling interest rates, expanding credit, strong population growth, constrained supply, investor tax concessions, and the rise of dual-income households. He argues those tailwinds are now fading under pressure from higher long-term rates, deteriorating affordability, tightening tax settings for property investors, and a policy shift towards lower immigration.
For borrowers carrying $600,000 in outstanding principal with 25 years remaining, the three increases already delivered in 2026 have raised monthly repayments by $272 since January. On a $600,000 mortgage, Oliver estimates each additional hike would add approximately $200 a month, bringing the total increase to just under $500 relative to the start of the year.
Oliver also pointed to record-high ratios of home prices to wages and income, and said rising mortgage rates are widening the gap between buyer capacity and current asking prices. Consumer confidence and sentiment around home buying have both declined.
Despite the bearish outlook on prices, Oliver stopped short of forecasting a market crash, arguing that a sharp downturn would require widespread forced selling — an outcome he considers unlikely without a significant rise in unemployment. "Calls for an imminent end to the property super cycle need to be treated with some caution though," he said.
"I thought it might be close to over five years ago, but it was extended by a surge in immigration coming out of the pandemic and constrained home building resulting in a chronic undersupply of housing.
"A crash would require wide scale forced selling by homeowners – but without much higher unemployment forcing homeowners to sell this is unlikely as Australians will do whatever they can to keep servicing their mortgage."
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
