Homeowners across the nation are bracing for a challenging year as experts predict a significant rise in interest rates by 2026, dashing any hopes for financial relief.

The Reserve Bank is expected to shift away from considering rate cuts this year, due to persistent inflation that remains well above its target range of 2-3 percent.

According to forecasts from NAB, homeowners could face two interest rate hikes before June, with anticipated increases of 0.25 percent in both February and May.

The Commonwealth Bank anticipates at least one rate increase next month, while HSBC cautions that another hike might occur by September unless both inflation and government spending see a marked decrease.

Meanwhile, ANZ and Westpac predict that interest rates will remain steady, although they too have abandoned earlier hopes for a reduction.

Economic forecasters at Morgans project that headline inflation will rise to 3.8 percent by late 2025, gradually reducing to three percent in 2026, still exceeding the Reserve Bank’s target.

The latest warnings come after inflation unexpectedly spiked to 3.8 per cent in October, while core inflation, the RBA’s preferred metric, rose to 3.3 per cent, well outside the central bank’s band.

Markets have swung wildly, moving from pricing in cuts to betting on hikes.

Millions of homeowners face a tough year ahead, with economists warning interest rates are set to rise sharply in 2026, crushing any expectation of relief (stock image)  

Traders now see a one-in-three chance of a February increase and are fully priced for a rise by June. 

Housing and services costs are soaring as Australia grapples with a chronic housing shortage, rapid population growth, rising wages and soaring energy bills, pushing up everything from rent to insurance and council rates.

Unemployment remains near record lows, driven by government recruitment in healthcare and the NDIS, along with businesses holding on to staff after years of crippling skills shortages. 

Economist Leith van Onselen believes a cooling property market may give the Reserve Bank room to breathe as price growth stalls in Australia’s biggest cities.

‘The pace at which prices are slowing and falling in major markets suggests a broader hit to consumption is coming, and less pressure on the RBA to deliver more hikes,’ he wrote on his Macrobusiness blog.

Fresh figures confirm the trend. 

Cotality’s daily dwelling values index, tracking prices across five major capitals, ended 2025 with momentum fading fast.

Growth slowed to 0.5 per cent in December, down from one per cent in November.

The Reserve Bank is widely tipped to abandon the idea of rate cuts this year as inflation lingers well above its 2-3 per cent target (stock image)

PropTrack’s latest report paints the same picture.

National home prices barely moved, rising just 0.1 per cent in December to a new record high.

The median home value now sits at $880,000, up 8.8 per cent over the year.

But cracks are showing in key markets.

Sydney ($1,239,000) and Melbourne ($852,000) both fell 0.3 per cent, while Canberra ($874,000) slipped 0.2 per cent.

Adelaide ($898,000) bucked the trend with a 0.8 per cent jump, while Brisbane ($997,000) and Perth ($930,000) each gained 0.5 per cent.

Consumer price data for November will be released on January 7.