RBA Raises Rates: What It Means for Borrowers

The Decision

The Reserve Bank of Australia has raised the official cash rate by 0.25%, from 3.60% to 3.85% — the first increase since November 2023. The unanimous decision was driven by inflation running hotter than expected (3.8% annually) and unemployment falling to 4.1%. Governor Michele Bullock said financial conditions were no longer tight enough to bring inflation back to target in a reasonable timeframe.

More Hikes on the Way?

All four major banks are tipping another rise to 4.10%. The RBA's own forecasts project inflation peaking at 4.2% by mid-2026, with the 2–3% target band not reached until June 2028. The next rate decision is scheduled for 17 March 2026, with May flagged as the most likely timing for any further move.

Impact on Homeowners

Before this decision, 24.5% of owner-occupier mortgage holders were already considered "at risk" of mortgage stress. That number is now expected to rise to 25.3%. Victoria and Tasmania are hardest hit, having already recorded the highest stress levels nationally.

Refinancing Is Surging

Refinancing inquiries jumped 9.6% in Q4 2025 compared to a year earlier, mirroring the rush seen after the first rate hike of the 2022 cycle. Higher rates also mean reduced borrowing capacity for anyone seeking new finance — making it a trickier environment to buy or refinance.

New Lending Rules: Debt-to-Income Limits

APRA has introduced a new rule: no more than 20% of a bank's loan book can have a Debt-to-Income (DTI) ratio above 6. In simple terms, your total debt divided by your gross income must generally stay at or below 6. For example, a $610,000 debt on a $100,000 income gives a DTI of 6.1 — which would now be restricted. This means banks will be more selective about who they approve and which borrowers they actively target.

Fixed vs Variable: Lenders Are Positioning

Rate pricing varies significantly between lenders right now. NAB's Basic Variable sits at 5.94%, while its 2-year fixed rate is lower at 5.79% — signalling it wants to lock in borrowers long-term. Bank of Melbourne is the reverse: 5.79% variable vs 5.89% fixed. Shopping around matters more than ever. (Rates as at 27 February 2026.)

LVR Pricing: Your Equity Might Be Worth More Than You Think

More lenders are now pricing loans based on your Loan-to-Value Ratio (LVR) — your loan as a percentage of your property's value. A lower LVR (e.g. under 60%) can unlock better rates with some lenders. However, some banks still use your property's original value at the time of settlement, ignoring any growth since. This means you could be paying a higher rate than necessary — and not even know it.

Bottom line: the mortgage market is getting more complex. Whether you're buying, refinancing, or simply reviewing your loan, it pays to understand the new landscape — and get advice tailored to your situation.

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.