Rate Rises Don’t Tell the Whole Story
The Reserve Bank of Australia has raised the cash rate by 25 basis points to 3.85% at its meeting on 3 February 2026, marking the first policy decision of the year. The move follows a renewed surge in inflationary pressure late in 2025.
According to ABS data released on 28 January 2026, headline CPI rose 3.8% year-on-year in December, while trimmed mean inflation increased 0.9% quarter-on-quarter and 3.4% year-on-year, remaining above the RBA’s 2 – 3% target band.
The key contributors to the inflation uplift were:
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Discretionary spending during the holiday period (+3.5%)
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Housing-related costs (+5%)
The RBA has reiterated that it will continue to closely monitor inflation and labour market conditions. Should inflation begin to moderate and employment conditions ease, the likelihood of an extended hiking cycle would reduce materially.
What Rising Interest Rates Mean for Rents and Property Prices
Historically, when interest rates rise, rents tend to increase faster. This dynamic is not driven by landlord behaviour, but by broader market forces.
As borrowing costs increase:
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Owner-occupier demand softens, particularly in higher-priced markets
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More households remain renters for longer, increasing rental demand
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This demand shift places upward pressure on rents, often with a lag effect before increases fully materialise
Importantly, landlords do not set rents in isolation – rental prices are determined by supply and demand conditions within each local market.
Market Segmentation Matters
Interest rate rises do not impact all property markets equally.
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More expensive markets tend to experience greater downside risk as affordability constraints tighten.
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Affordable markets, by contrast, typically benefit from:
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Lower downside risk
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Increased rental demand during rising rate environments
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Greater resilience in both yields and prices
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This divergence has been clearly evident since the onset of COVID in March 2020. Despite a rapid rate hiking cycle, home values in Adelaide, Perth and Brisbane have risen by approximately 80%, while higher-priced and more oversupplied markets such as Sydney and Melbourne have experienced greater volatility, including a downturn in 2022 – 23 and a more moderate recovery since.
Putting Rate Rises into Perspective
For a $1 million property:
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15% annual price growth equates to approximately $150,000 in value uplift
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A 0.25% rate increase on a $1 million interest-only loan adds roughly $2,500 per year in interest costs
(The cash flow impact is higher under principal and interest repayments)
While higher borrowing costs can dampen demand in some markets, the adjustment is most pronounced where supply is high or affordability is already stretched.
Our Position and Client Outlook
inSynergy clients are predominantly positioned in affordable, supply-constrained markets that historically perform well through rising rate environments. This reinforces confidence in current portfolio strategies and provides a strong foundation for client reassurance.
Despite earlier market commentary around potential rate cuts, continued rate rises are typically associated with:
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A stronger underlying economy
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Rising incomes, which support rental demand and long-term serviceability
We remain confident that the high-growth markets we have identified will continue to outperform, supported by strong demand, constrained supply, and resilient rental fundamentals.
At inSynergy, we use advanced modelling, national datasets and deep market analysis to constantly monitor the national and sub-markets to help our clients invest with clarity and confidence – not speculation.
If you’d like to understand how these insights apply to your personal strategy, speak with our team today.