18-year high interest rates; mapping the road to relief for borrowers and homeowners

On Melbourne Cup Day, the Reserve Bank of Australia (RBA) lifted the cash rate for the fifth time this year, taking it to 4.85%, its highest level since 2008. For many households it is another squeeze on the budget. The RBA’s latest forecasts, together with the slide in home prices, also offer useful clues about when conditions could start to improve.

Key points

  • The RBA raised the cash rate by 0.25% to 4.85% on 3 November 2026, its fifth increase this year.
  • The RBA forecasts headline inflation to peak around 4.5% at the end of 2026, then ease back to 2.5%, the middle of its target band, by mid-2028.
  • Another rate rise can’t be ruled out, and relief through rate cuts looks more likely to be a 2027 story than a 2026 one.
  • National house prices were -6.7% below their March peak in October. AMP forecasts a total fall of around -15%, with prices bottoming around the September quarter of 2027.
  • The US mid term elections result in the Democrats regaining control of Congress and the Senate, which may ultimately lead to inflation and rate relief domestically earlier than expected.

Why the RBA moved again

Inflation remains the problem. Headline inflation was 3.9% over the year to the September quarter and the RBA’s preferred underlying measure, the trimmed mean, was 3.7%. Both sit well above the RBA’s 2–3% target. Higher fuel costs linked to the Middle East conflict have played a part, but the RBA says price rises are now broadly based, and it is concerned that expectations of higher inflation could become entrenched.

For borrowers, the cost adds up. The latest rise adds roughly $110 a month in interest for a borrower with an average-sized mortgage, if passed on in full, and around $550 a month increase in costs since January this year.

Line chart showing Australia’s inflation forecast falling into the 2–3% target band by 2027, with the cash rate at 4.85%.

What’s happening to home prices

Housing has felt the effect of higher rates most quickly. Cotality (formly Core Data) data shows national average house prices fell 1.2% in October, the seventh monthly fall in a row, leaving them 6.7% below their March high. Sydney has led the decline, down 10.1%. The RBA points to higher interest rates and the tax changes for property investors announced in the federal budget as key drivers.

A total fall of around 15% from the peak of house prices is expected by AMP economists, which it notes would be deeper than typical capital city downturns of the past 40 years or so. Some perspective helps, though. National prices are still up nearly 50% this decade, and an ongoing housing shortage and the expanded 5% deposit scheme for first home buyers continue to provide support. House prices are expected to bottom around the September quarter of 2027 by AMP economists, as the market starts to anticipate rate cuts, followed by a modest recovery over 2027–28.

Chart showing national home prices falling 6.7% by October 2026, forecasting a bottom around 15% below the March 2026 peak before a modest recovery.

What it could mean for you

Every household will feel this differently. If you have a mortgage, it may be worth checking whether your budget could absorb a further rise, and talking to your lender early if repayments are becoming harder to manage. If you rely on savings, higher cash rates generally flow through to deposit rates, although high inflation still erodes what that interest can buy. For homeowners who aren’t planning to sell, a fall in paper value matters less than the ability to meet repayments. For buyers, softer prices may create opportunities, but long-term affordability matters more than trying to pick the exact bottom.

Higher rates affect different parts of a portfolio in different ways, which is a reminder of why diversification and a long-term plan matter more than reacting to each rate decision.

The bottom line

The Cup Day rise is unwelcome, but it isn’t the end of the story. The RBA’s own forecasts point to inflation easing through 2027, and past housing downturns have eventually given way to recovery. Timing will depend on oil prices, the jobs market and the RBA’s next moves, so it makes sense to focus on what you can control: your cash flow, your buffers and a plan that suits your circumstances.

Overnight, the Democrats regained control of the US Congress and Senate in a stunning rebuke of Trump’s America. While direct power still sits with Trump and his use of executive orders, Congress and the Senate are now controlled by the Democrats which will likely raise the pressure on Trump and help move towards a peace with Iran earlier, which would result in stabilising oil prices, ultimately helping lower inflation and providing interest rate relief earlier than expected.

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