Yesterday’s decision by the Reserve Bank of Australia to lift the cash rate to 4.10% marks a clear shift in direction for 2026, reinforcing the Bank’s focus on bringing inflation back under control.
While the move was widely anticipated, its real impact will be felt not in headlines, but in how buyers, sellers and investors adjust over the coming months.
A Reset in Borrowing Power
A 0.25% increase may seem modest, but its cumulative effect is meaningful. For many households, this translates to higher monthly repayments and reduced borrowing capacity.
In practical terms, buyers are reassessing budgets. This does not mean they are exiting the market, but they are becoming more measured in how and where they compete.
This is where we typically see a shift:
-
fewer emotionally driven offers
-
more negotiation around value
-
slightly longer decision-making timeframes
Confidence vs Capacity
Confidence does not always move in line with interest rates. Even in recent weeks, buyer sentiment has shown resilience despite expectations of further tightening.
What changes instead is capacity.
Buyers may still want to purchase, but:
-
their ceiling lowers
-
their expectations sharpen
-
their focus shifts to quality and long-term value
For coastal markets like ours, this tends to favour well-located, well-presented homes that feel complete rather than projects.
What This Means for Prices
The data is consistent. Interest rate increases tend to slow price growth rather than reverse it entirely.
Recent modelling suggests rate rises may trim future price growth by around 1 to 2 percentage points over the next couple of years.
In practical terms:
-
prices may still rise, but at a more moderate pace
-
the market becomes more balanced
-
negotiation returns as a key part of the process
This is a very different environment to the urgency-driven conditions of previous years.
A More Selective Market
With borrowing power tightening, we are likely to see:
-
stronger performance in lifestyle-driven locations
-
increased scrutiny on property quality and condition
-
more variation between A-grade and B-grade homes
On the Mornington Peninsula, lifestyle fundamentals such as proximity to the beach, village access, privacy and land size continue to underpin demand regardless of rate movements.
The Bigger Picture
The RBA has been clear. This decision is about controlling inflation, not halting growth.
While higher rates create short-term pressure, they also support longer-term stability in the market, which benefits both buyers and sellers.
Our Perspective
What we are seeing on the ground is not a slowdown, but a shift.
A shift towards:
-
considered buying decisions
-
realistic pricing strategies
-
a more balanced negotiation environment
For sellers, presentation and positioning matter more than ever.
For buyers, it creates an opportunity to act with greater clarity and less competition-driven urgency.