An interest rate pause, but the pain may not be over yet
Borrowers may need to dig deep before the year is out
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The prospect of another interest rate hike rests on the outcome of the June quarter inflation figures, research director at property data analysts CoreLogic said.
CoreLogic’s Tim Lawless said while yesterday’s decision by the RBA Board to keep interest rates on hold was welcome news for mortgage holders, it was not an indication that rates had peaked.
“The June quarter inflation outcome, to be released late this month, will be critical in determining whether there are more rate hikes ahead,” he said.
Although most economists expected the RBA Board to increase the cash rate by another 25 basis points yesterday, governor Philip Lowe said the board recognised the need for a pause as the full impact of a four per cent rise in rates since May last year fully played out.
However, another rate rise is clearly still on the table.
“Inflation in Australia has passed its peak and the monthly CPI indicator for May showed a further decline,” Mr Lowe said. “But inflation is still too high and will remain so for some time yet.
“And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. For these reasons, the Board’s priority is to return inflation to target within a reasonable timeframe.”
Navigating a pathway through managing inflation via additional rate rises without further limiting access to credit will be tricky, Mr Lawless said. At the same time, higher cost of living was having a negative impact on consumer confidence.
“Currently high interest rates and the potential for a hike in August could weigh further on consumer sentiment, which is already around GFC lows,” he said. “Historically consumer sentiment and housing market sales have been closely correlated.
“The combination of high cost of living pressures, negative real income growth and the high cost of debt have made it hard for borrowers to obtain credit approval, especially with lenders less willing to lend on high debt-to-income ratios, high loan-to-income ratios or on smaller deposits.”
He said the current level of interest rates would most likely expose more borrowers to mortgage arrears in the coming months, although it may not be as severe as some predicted.
“To date, the majority of borrowers have kept on track with their mortgage repayments, with APRA data for the March quarter indicating only half a percent of home loan borrows had fallen less than 90 days behind on their mortgage repayments,” Mr Lawless said.
“While the portion of borrowers falling behind on their repayment schedule is likely to rise, Australia’s unemployment rate is forecast to remain below 5 percent, which should help to prevent a material blowout in mortgage arrears.”
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Strong rental fundamentals and tight supply have driven more than $155 million in Sydney apartment block and residential investment sales over the past year.
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Sydney’s residential investment market has recorded $155 million in apartment block and townhouse sales over 2025, underscoring continued investor confidence in rental-led assets despite broader economic uncertainty.
The transactions were completed by Knight Frank’s Investment Sales agents James Masselos and Adam Droubi, who negotiated 19 sales across Sydney during the year.
Residential investments accounted for 75 per cent of their total sales activity, supported by more than 4,200 active purchaser enquiries.
Co-living deal sets national benchmark
Among the standout transactions was the off-market sale of 142 Carillon Avenue in Newtown, a 37-studio co-living apartment block located close to the University of Sydney and Royal Prince Alfred Hospital.
The property sold for $21.5 million, setting a new benchmark for the living sectors market nationally.
The deal achieved approximately $581,000 per bedroom, believed to be one of the highest per-bedroom results recorded for a co-living asset in Australia.
Inner-city assets trade in one line
Other notable sales included a group of 12 townhouses at 108 Illawarra Road in Marrickville, sold in one line for $14 million, and a block of 20 studio apartments at 171 Rowntree Street in Birchgrove, which changed hands for $6.7 million.
Both transactions reflected strong buyer competition for well-located residential assets with established income streams.
Supply constraints underpin momentum
Mr Masselos said Sydney’s apartment block market continued to benefit from tight supply and strong rental conditions.
“Apartment blocks and broader residential investments remain a robust asset class, underpinned by strong rental growth, record low vacancy levels and scarcity of stock,” he said.
He added that more than $25 million worth of residential investment opportunities are expected to come to market in 2026, with buyer enquiry remaining elevated.
Mr Droubi said competitive sales campaigns had become a feature of the market as investors sought secure income and long-term value.
“Supply constraints and ongoing population growth underpin market strength,” he said. “New approvals and completions lag demand, keeping stock tight and boosting both rents and prices.”
Vacancy rates keep pressure on rents
According to Knight Frank, rental demand across Sydney remains intense, with vacancy rates well below typical “healthy” levels.
Many middle and outer-ring suburbs are recording vacancies of around 1.5 per cent or lower, maintaining upward pressure on rents and reinforcing the appeal of residential investment assets.
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