All Four Banks Just Flipped. This Will Destroy The Property Market
By: Niro Thambipillay
September 22, 2026
All four major Australian banks now expect the RBA to raise interest rates, while markets have priced the chance of an increase at close to 90%. Another rise would intensify mortgage pressure and reduce borrowing capacity, but the more important property-market effect may be fewer homes being built.
In this article, Niro Thambipillay examines the global tightening cycle, the repayment impact on a $600,000 mortgage, the collapse in forward-looking new-home sales, and the three indicators that would need to change before Australia faces a genuine prolonged property downturn.
TL;DR
Australia appears to be joining a global interest-rate tightening cycle. A fourth local rise in 2026 would add about $364 a month to repayments on a $600,000 mortgage compared with the start of the year. Yet low arrears and limited negative equity do not indicate mass forced selling. The bigger risk is future supply: new-home sales fell 19.3% over the three months to August, while the rental vacancy rate is around 1.3% and rents are up 7.2% over the year.
Key Takeaways
- A rate rise was close to fully priced: markets placed the chance near 90%, and all four major Australian banks expected the RBA to move.
- Mortgage costs have risen sharply: four increases would add about $364 a month, or more than $4,300 a year, to a $600,000 mortgage.
- Distress remains limited: the RBA said negative equity was rare and only a small number of borrowers were struggling with repayments.
- Future housing supply is contracting: new-home sales fell 10% in August and 19.3% over the quarter, including a 27% fall in Victoria.
- The rental squeeze is already visible: vacancy is around 1.3% and rents have increased 7.2% over the year.
What Did Australia’s Major Banks Change?
CBA brought its rate-rise forecast forward from November to September after Westpac made a similar move. Together with NAB and ANZ, all four major banks expected the RBA to increase rates at its next meeting. Market pricing put the chance close to 90%.
1. Australia Is Joining a Global Tightening Cycle
The United States Federal Reserve, the European Central Bank and New Zealand’s central bank had all raised rates, while the Bank of Japan moved to a 31-year high. NAB’s chief economist described the synchronized moves as the beginning of a global tightening cycle rather than a one-off Australian event.
That distinction matters. If inflation does not return to the middle of the RBA’s target band until 2027, borrowers may face several more months of restrictive conditions before a rate cut becomes realistic.
2. Mortgage Pain Reduces Borrowing Capacity Before It Forces Sales
If the expected rise proceeds, it would be Australia’s fourth increase of 2026. Canstar estimated that repayments on a $600,000 mortgage would be about $364 higher each month than at the start of the year, adding more than $4,300 annually without reducing the loan principal.
The pressure is real, but it does not automatically create the conditions a genuine Australian property crash would need. The RBA governor said negative equity remained very limited and only a small number of borrowers were experiencing repayment difficulty. With mortgage arrears around 1% or less and falling, the evidence does not show mass forced selling.
3. Higher Rates Break the Construction Pipeline First
New-home sales fell 10% in August and 19.3% over the three months to August. Victoria recorded a 27% decline. Rising rates reduce what households can borrow, while a new build may take 18 months or longer and require the buyer to carry interest costs throughout construction.
Building approvals were 9% higher than a year earlier in July, but approvals reflect decisions made in an earlier environment. New-home sales are the forward-looking measure. When sales collapse today, the missing approvals and commencements appear later. This is one reason Australia’s housing policies are making home ownership harder.
4. The Supply Squeeze Appears in Rents Before Prices
The national rental vacancy rate is around 1.3%, while rents have risen 7.2% over the year. Higher rates push borrowing capacity down, leaving fewer households able to buy and more competing for rental accommodation.
At the same time, fewer construction contracts mean fewer future homes. That combination can intensify rent growth before the shortage becomes obvious in established-property prices. When sentiment eventually improves, renewed demand may return to a market with even less available stock.
5. Three Indicators Separate a Crash From a Supply Squeeze
First, watch mortgage arrears and forced selling. Second, track new-home sales rather than relying only on backward-looking approvals. Third, monitor the vacancy rate. A genuine prolonged downturn would become more likely if distress rose sharply, a wave of new supply arrived and rental vacancies increased.
Those signals are not present now. Current conditions point to restrained buyers, slowing construction and an undersupplied rental market. Buyers with the financial capacity may have greater negotiating power, but not every location will benefit equally when demand returns. Use suburb-level evidence when choosing the best areas to invest in.
The Verdict: Higher Rates Could Deepen the Shortage
Another rate rise will hurt household cash flow and reduce buyer activity. Yet the same pressure is also reducing the number of homes entering the construction pipeline. In a structurally undersupplied market, that can create the conditions for a fast rebound once confidence and borrowing capacity improve.
For owners: review repayment buffers and cash flow, but do not assume higher rates automatically mean widespread price falls. Track local listings, arrears and vacancy rates.
For buyers and investors: uncertainty can create negotiating opportunities if you can comfortably afford the debt. Focus on locations where supply is tight relative to owner-occupier and rental demand, and avoid buying blindly simply because a suburb looks affordable.
Summary
- All four major Australian banks expected another RBA rate rise
- Markets had priced the probability of an increase at close to 90%
- Four 2026 rises would add about $364 a month to a $600,000 mortgage
- Negative equity and repayment distress remained limited according to the RBA
- New-home sales fell 19.3% over the three months to August and 27% in Victoria
- The national vacancy rate is around 1.3% and rents are up 7.2% over the year
- Forced sales, new-home supply and rental vacancies are the three key indicators to watch
Frequently Asked Questions
Watch mortgage arrears and forced selling, forward-looking new-home sales, and the rental vacancy rate. A genuine prolonged downturn would be more likely if all three moved sharply towards distress, excess supply and weaker rental demand.
Higher rates reduce borrowing capacity and increase the holding cost of a new build, which may take 18 months or longer to complete. As fewer households sign new construction contracts, new-home sales fall and fewer projects enter the future building pipeline.
Higher rates can weaken demand and borrowing capacity, but a lasting price crash usually requires widespread forced selling or a large oversupply of homes. The RBA said negative equity remained very limited and only a small number of borrowers were having repayment difficulty.
After four rate rises in 2026, Canstar estimated that a borrower with a $600,000 mortgage would be paying about $364 more each month than at the start of the year. That is more than $4,300 a year in additional interest costs.
Yes. At the time of the video, all four major Australian banks expected the RBA to raise the cash rate at its next meeting, while markets had priced the probability of a rise at close to 90%. CBA had brought its forecast forward from November to September, following Westpac.
About the Author
Niro Thambipillay
Niro is the founder of Investment Rise, one of Australia’s most trusted property buyers agencies. He has helped hundreds of first-time investors build property portfolios and was voted one of the most trusted Real Estate entrepreneurs in the Asia Pacific region (APAC 2022). Niro is also the author of “How to Build a Property Portfolio That Pays You an Income Every Month.”
