Grim forecast Aussies with a mortgage will have to wait TWO YEARS for an interest rate cut - but there's a silver lining for homebuyers

Aussies with a mortgage have been warned they may have to wait as long as two years before they are given an interest rate cut, with even more hikes on the way. 

Westpac has forecast three more crushing interest rate increases in 2026, levels not seen since the Global Financial Crisis in 2008.

The banking giant announced on Monday it now expects the RBA to increase the cash rate by 0.25 percentage points in May, June and August, making it a total of five hikes in as many meetings and pushing the cash rate to a punishing 4.85 per cent.

More troubling for mortgage holders, Westpac anticipates no rate cuts until 2028, signalling years of sustained financial pressure for Australian borrowers. 

Homebuyers have been given a silver lining, with house prices in Sydney and Melbourne beginning to go backwards amid expectations they could fall as much as six per cent.

Westpac chief economist Luci Ellis said the pressure is being driven by surging fuel costs linked to the ongoing conflict in the Middle East, with the bank's revised forecasts assuming a prolonged disruption to fuel supply.

In the baseline scenario, the Strait of Hormuz is effectively closed for eight weeks, with shipping traffic recovering only slowly after that. 

'It also reflects the surprisingly rapid pass-through of higher fuel and other oil-derived product prices into other prices in Australia,' Ms Ellis said.

Aussies with a mortgage have been warned they may have to wait as long as two years before they are given an interest rate cut, with even more hikes on the way (stock image)

'We believe the RBA will respond to this pricing behaviour by tightening monetary policy by more than would have been needed absent that pass-through.'

Ms Ellis said the Reserve Bank would take a 'once bitten, twice shy' approach to unwinding rate rises, forecasting cuts from February 2028 although she said the timing remained highly speculative. 

Canstar analysis shows if the cash rate rose by 0.25 percentage points in May, June and August, monthly repayments on a $600,000 loan with 25 years remaining would rise by approximately $276.

Including the two hikes already this year, total monthly repayments could increase by $457 by August.

Canstar's data insights director Sally Tindall said borrowers could be in for a tough couple of years if Westpac's forecast for three further hikes and no rate cuts until 2028 comes to pass.

'While the other big banks are tipping just one more hike, Westpac is now forecasting a far more aggressive path, which would take the cash rate to levels we haven't seen since the fallout from the GFC,' she said.

'The flow-on effect of higher fuel costs has already started pushing up prices elsewhere. The RBA may feel like it has to act because once prices go up, they rarely come back down.'

Ms Tindall said while the government might have tried to soften the blow by halving the fuel excise, if the RBA then raises the cash rate, it could turn into a merry-go-round of money passed from the bowser to the banks.

SQM Research has downgraded its 2026 market forecast, which shows Australia's two most prominent property markets, Sydney and Melbourne, are now officially going backwards due to the impact of war in the Middle East (stock image)

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'For borrowers, know that this is only a forecast, not a done deal, but use it as a warning to get your finances, particularly your mortgage, in the best position possible,' she said.

SQM Research has downgraded its 2026 market forecast, which shows Australia's two most prominent property markets, Sydney and Melbourne, are now officially going backwards due to the impact of war in the Middle East.

It forecasts Sydney homes will fall by up to six per cent and Melbourne is projected to follow suit with anticipated falls of up to four per cent. 

Property researcher and consultant Cameron Kusher backed those predictions and pointed to falling auction clearances and weak price growth in the two capitals as indicators the market was already struggling ahead of more financial pain for mortgage holders.

'The market at the moment is expecting at least two further interest rate increases this year and possibly more likely than not a third,' he told news.com.au.

'Two interest rate increases takes us back to the highest rates we've had since 2011. A third one takes us back to the highest interest rates we've had since the global financial crisis was just hitting.

'A lot of people have never experienced interest rates this high, and obviously property prices and mortgage sizes are a lot larger than they were back in 2008.

'I think for all of those reasons … I'm getting pretty bearish on property.'

Mr Kusher predicted the other capitals would continue to rise, but at a slower rate, particularly if rates continue to rise.

'I don't think we're looking at catastrophic falls, but I think we could see prices fall four or five per cent,' he said.

'And then depending on how long interest rates remain elevated, we could see more falls into 2027 as well.'