Mortgage Rates Drop as RBA Holds Amid Housing Downturn

With the RBA holding rates steady and housing prices falling across major capitals, lenders are cutting variable and fixed mortgage rates. Borrowers may see more relief ahead.

What happened

The Reserve Bank's decision to hold the cash rate at 4.35% on 11 August has opened space for mortgage competition to intensify. Following three consecutive rate rises between February and May, the RBA signalled a pause while inflation remains elevated. However, the pause appears to have convinced lenders that the tightening cycle may have peaked, prompting significant rate competition in the new-customer market. In the week leading up to the decision, four lenders cut variable rates by an average of 0.12%, while two trimmed three-year fixed rates by 0.17%. The lowest owner-occupier variable rate on offer has reached 5.69%, with 49 lenders now quoting below 6% compared to just 38 at the start of June.

What it means

Housing market weakness provides context for the lenders' moves. National dwelling values fell 1.9% in the rolling quarter to July, marking the second consecutive quarter of declines. Sydney and Melbourne have led the downturn—Sydney is down 5.3% from its January 2026 peak, while Melbourne has retreated 5.5% from March 2022 highs. Mid-sized capitals including Brisbane, Adelaide, and Perth have only recently begun falling after years of growth. The RBA's August Statement noted that housing prices and activity have eased more than expected, reflecting combined pressure from rate rises, tax changes in the federal budget, and weaker consumer sentiment. This shift may provide some relief to mortgage holders who have endured significant increases in repayments since February.

Demand for new housing finance has also softened. The ABS reported that total new dwelling loan commitments fell 5.4% in the June quarter 2026, with investor lending down 8.6%. Owner-occupier commitments fell 3.3%, though first-home buyer numbers declined only 2.9%. This broader pullback reflects both higher mortgage stress—Roy Morgan data showed 29% of borrowers at risk in May—and reduced purchasing appetite as higher rates and lower property values reshape borrower calculations. The RBA has indicated that inflation remains sticky at levels above target and may require further tightening if upside risks materialise, leaving uncertainty about the timing of any future rate cuts.

What to do next

Borrowers considering their options may want to review current rates and their own serviceability positions. With lenders now competing across both fixed and variable products, and the RBA signalling a hold while keeping future hikes open, the mortgage landscape appears to be in transition. Those locked into older, higher rates may find refinancing opportunities compelling, though tighter serviceability tests mean some borrowers face constraints on borrowing capacity. Monitoring inflation data and the RBA's forward guidance over coming months could help borrowers anticipate the next phase of the rate cycle.

General information only. This content is educational and does not constitute personal credit or financial advice.