Cash Rate Hits 4.60%: What the RBA's Fourth Hike of 2026 Means for Your Mortgage

The Reserve Bank of Australia has lifted the cash rate again. On 29 September the board lifted it by 0.25 percentage points to 4.60%, the highest level since late 2011. It is the fourth increase this year, taking total tightening in 2026 to a full percentage point, and it ends a pause that had held since May.

If you have a mortgage, or you're trying to get your first one, here's what's behind the decision and what it means for you.

Why the RBA moved

The board's decision was unanimous. When it left rates on hold in August, it signalled it would act if inflation risks materialised. According to the RBA, some of those risks did.

The main drivers were:

•         Oil supply disruptions, which pushed fuel costs up and flowed through to the prices of other goods and services

•         Underlying inflation of 3.6%, still well above the RBA's 2-3% target band

•         Stronger growth than expected, with the economy expanding 2.1% over the year

The August jobs data added some doubt, with unemployment rising from 4.2% to 4.6%. But most of the new jobs were part-time and full-time employment fell, so the data wasn't enough to change the RBA's mind. The RBA also said it will do what's necessary to bring inflation down, and it hasn't ruled out further hikes.

What comes next?

Economists are split. Some expect another increase in November, particularly if the RBA's updated forecasts show stronger growth and inflation. Others, including AMP's chief economist Shane Oliver, think one hike followed by a hawkish hold is more likely. His concern is that too much tightening could deepen the housing downturn and risk a recession.

All four major banks had forecast this September rise, and ANZ is now tipping another in November. The major banks broadly expect rates to stay high through much of 2027 before easing gradually.

The real cost to borrowers

A quarter of a percentage point sounds small, but it adds up quickly.

•         On a $600,000 loan, the MFAA estimates this hike adds close to $100 a month to repayments if passed on in full.

•         On a $750,000 loan, this hike adds roughly $1,450 a year.

•         Across all four hikes, that same $750,000 borrower is now paying about $5,750 more a year than in January.

Borrowing power is taking a hit

This is the part that's catching many buyers off guard. Cotality estimates the four hikes since February have cut borrowing capacity by almost $90,000, roughly 9% of purchasing power. This hike alone reduces capacity by around $13,000 for a household borrowing $600,000.

House prices have softened, particularly at the top end of the market. But brokers around the country are finding that reduced borrowing power is outweighing the benefit of lower prices. A cheaper property doesn't automatically become more affordable if the amount a lender will give you has fallen faster.

Lenders also assess your application with a serviceability buffer of 3 percentage points above the actual loan rate, as required by APRA. Every rate rise therefore hits borrowing capacity twice: once through the higher rate and again through the higher buffer.

First home buyers face extra pressure. Some brokers say recent tax changes in the federal budget are pushing investors towards more affordable suburbs, which means first home buyers could be competing for a smaller pool of properties with less money to spend.

What you can do now

Conditions are tougher, but they're workable with good preparation. Here's the approach I recommend:

1.       Work backwards from your borrowing capacity, not forwards from a listing. Know your real number before you fall in love with a property.

2.       Review your current loan. If you're a borrower who hasn't looked at your rate or structure in a while, a review could save you thousands. Many lenders don't pass on their best rates unless you ask.

3.       Tighten your budget. Lenders scrutinise expenses closely, and small reductions in monthly spending can lift your borrowing power.

4.       Get your finance sorted early. With less room for error, buyers who are pre-approved and ready to move are better placed when the right property appears.

5.       Talk to a me about structure. Rates matter, but so do loan features, repayment strategy and whether a loan still suits what you're trying to achieve.

The market is quieter, with Equifax data showing mortgage demand down 14.1% year on year in August, the fifth straight monthly fall. That doesn't mean buyers have disappeared. Many are simply taking more time to educate themselves before committing, which is a smart move in this environment.

Let's talk

Whether you're worried about your repayments, wondering if now is the time to refinance, or trying to work out how much you can borrow, I'm here to help. Getting advice early costs nothing and can save you a lot.

This information has been prepared by PHA Financial Services and does not take into account your objectives, financial situation or needs. Before acting on this information you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The information provided was accurate at the time of publication and changes in circumstances after a document is published may impact on the accuracy of information. Some information may have been collated from various third parties and we make no assertion that the information was originally ours.