Why Australian Banks Are Raising Fixed Rates in Late 2025 and What It Means for Your Mortgage in 2026 and Beyond

If you are a homeowner, property investor or a potential buyer in Australia, you have likely felt the confusion and whiplash of the last few months. Just when it seemed like the Reserve Bank of Australia (RBA) had settled into an easing cycle, cutting the Official Cash Rate (OCR) three times earlier in 2025 and bringing it down to a stable 3.60%, the fixed home loan market decided to go its own way.

In November and December 2025, a noticeable and widespread trend emerged: Australian banks started increasing their fixed interest rates, particularly on two, three, and five year terms. This was a direct, independent pricing decision by the banks, one that appeared to fly in the face of the RBA’s recent ‘hold’ decision. This move has major implications for your household budget and property planning for the next few years.

Here at Seed Loans, we want to cut through the noise and explain why this happened, which banks led the charge, and what the probability forecast for 2026 and 2027 looks like. More importantly, we will tell you how partnering with an expert mortgage broker is now more crucial than ever to navigate this unpredictable landscape.

The critical thing to understand is that fixed interest rates are not directly controlled by the RBA’s cash rate. While the cash rate is the benchmark for variable home loans, fixed rates are primarily driven by the long term cost of funds in the wholesale money markets.

Banks fund their fixed rate loans by borrowing money for that same fixed period, often by issuing or purchasing Australian Government Bonds. When the yield on these bonds rises, the cost for the bank to offer a three year fixed rate loan goes up immediately.

Here is the breakdown of the three key factors that forced banks to raise fixed rates in late 2025:

1. The ‘Further Cuts’ Narrative

Throughout the first half of 2025, the market widely expected the RBA would continue its easing cycle, delivering another one or two cuts in late 2025 or early 2026. This expectation kept wholesale funding costs low.

However, recent economic data in late 2025 proved otherwise. Stubborn inflation, particularly in the services sector (like rents and insurance), and a surprisingly resilient jobs market forced the RBA to keep the official cash rate at 3.60% for longer. The narrative completely shifted from “The RBA is cutting” to “The RBA is on an extended hold.”

2. Rising Wholesale Funding Costs (Bond Yields)

As the expectation for future RBA cuts vanished, the bond market reacted immediately. The Australian Government Bond Yields for two, three, and five year terms (the exact terms banks use to price their fixed loans) began to climb sharply in October and November 2025.

When the cost of borrowing for the bank goes up, the price of the product they sell to you (the fixed rate home loan) must also go up. Banks were simply reacting to the higher cost of providing that rate certainty.

3. Hedging Against Future Risk

Banks are not taking chances. By raising fixed rates, they are essentially pricing in the risk that inflation could prove so intractable that the RBA might actually be forced to reverse its course and hike the cash rate again in 2026. This risk of a future rate hike has become the most significant driver of the fixed rate increases.

The fixed rate increases in November and December 2025 were a market wide adjustment, not just a move by a few specific institutions. When wholesale funding costs rise, all lenders are affected equally.

While it is impossible to list every single price change by every credit union and bank, the increases were implemented across the entire banking spectrum.

• The Big Four Banks: Major lenders like Commonwealth Bank of Australia (CBA), Westpac, ANZ, and National Australia Bank (NAB) all implemented increases on their fixed rate home loan products. These increases were particularly pronounced on the longer terms (three and five years), where the banks face greater uncertainty about their future costs.

• Smaller and Non Major Lenders: Credit unions, mutual banks, and non major banks also followed suit. If a lender’s fixed rate was significantly below the wholesale funding cost, they had no choice but to adjust upwards to maintain profitability.

Key Insight: In late 2025, the competitive advantage for fixed rates shifted from who had the lowest rate to who was the slowest to move the rate upwards. The market essentially reset itself to a higher baseline for rate certainty.

Understanding the fixed rate increases of late 2025 is essential, but the true value lies in what this tells us about the future. The late 2025 fixed rate hikes were a prediction by the banks of the RBA’s path over the next two years.

Here is the current probability forecast for the RBA Cash Rate (currently 3.60%) through 2026 and into 2027, based on consensus from major economic commentators and bond market movements:

Scenario 1: The Extended Hold (High Probability)

• Expected Rate: The RBA cash rate remains stable at 3.60% for most, if not all, of 2026.

• Underlying Logic: Inflation takes longer than expected to fall convincingly back into the RBA’s 2 per cent to 3 per cent target band. The RBA feels the current rate is ‘slightly restrictive’ and needs to stay there for an extended period to fully ensure inflation is tamed.

• Mortgage Impact: This scenario means variable rates stay put, offering stability. However, it justifies the banks’ recent high fixed rates, as the cost of funding for them will not fall.

Scenario 2: The Next Move is a Hike (Rising Risk)

• Expected Rate: A possible 0.25 to 0.50 basis point hike in the first half of 2026, bringing the cash rate to around 3.85% or 4.10%.

• Underlying Logic: Services inflation or wage growth reaccelerates, leading the RBA to believe its previous cuts were premature. They would be forced to reverse course to maintain credibility and halt inflation.

• Mortgage Impact: This is the nightmare scenario for variable rate holders, leading to immediate repayment increases. It is also the specific risk that banks have priced into their fixed rates, making fixed loans a potential (though expensive) insurance policy against this outcome.

Scenario 3: Shallow Cuts Resume (Diminished Probability)

• Expected Rate: A 0.25 to 0.50 basis point cut spread across late 2026, bringing the rate to around 3.35%.

• Underlying Logic: The Australian economy slows more sharply than expected, the jobs market weakens, and inflation finally drops decisively into the lower half of the RBA’s target band.

• Mortgage Impact: This is the most favourable outcome for variable rate holders. It would also likely trigger a reduction in fixed rates as banks start betting on cheaper funding costs again. However, this is currently considered the least likely major scenario.

In summary: The fixed rate hikes of late 2025 signal that the market believes the best homeowners can hope for is an extended hold (Scenario 1), with a growing, palpable risk of a rate hike (Scenario 2). The days of confidently forecasting multiple RBA cuts in 2026 are over.

The fixed rate increases have complicated the fixed versus variable decision, making the gap between the two options smaller and the decision more nuanced.

The New Case for Variable Rates

Variable rates remain attractive because they offer flexibility.

• Features: They typically come with beneficial features like offset accounts and unlimited extra repayments without penalty. These features can save thousands of pounds in interest over the life of the loan.

• Upside Potential: If Scenario 3 (Shallow Cuts) comes to fruition, or even if the RBA’s extended hold lasts longer than the market expects, variable rate holders will be the first to benefit when rates finally fall.

• Current Reality: Despite the RBA’s cuts, some competitive variable rates are now surprisingly close to the higher fixed rates offered by banks, making the lack of flexibility and feature limitations of a fixed product harder to justify.

The New Case for Fixed Rates

The decision to fix is now purely about risk management and certainty in the face of uncertainty.

• Budget Certainty: Fixing gives you predictable repayments for two, three, or five years, allowing for perfect household budgeting regardless of the RBA’s actions.

• Insurance Against a Hike: The higher fixed rates are essentially a premium you pay to protect yourself against the growing risk of a rate hike in 2026 (Scenario 2). If the RBA does raise the rate, a fixed rate homeowner will be extremely grateful for the stability they locked in.

• Locking in Today’s Rate: While fixed rates are higher than they were a year ago, they still allow you to lock in a rate that is, by historical standards, relatively manageable, especially when compared to the double digit rates of decades past.

In this complex environment of late 2025 and heading into 2026, relying solely on public bank advertisements is a recipe for error. The market is moving too fast and the products are too varied.

This is precisely where Seed Loans and our expert brokers come in.

Why You Need a Broker Right Now

• Access to the Whole Market: The rate listed on a major bank’s website is rarely their best offer. A broker has access to hundreds of products, including those from smaller lenders who may not have fully priced in the wholesale funding increases, or who are offering a temporary special. We can find you the hidden gem, the rate you cannot find alone.

• Navigating the Fine Print: Fixed rate loans have strict conditions, including penalties for breaking the loan early (known as break fees). A broker will assess your financial goals and property plans (Are you moving? Are you renovating?) to ensure the fixed term does not become an expensive trap.

• Structuring the Right Split: The safest strategy for many homeowners is a split loan, where a portion is fixed (for certainty) and a portion remains variable (for flexibility, offset account benefits, and the potential for a future rate cut). A Seed Loans broker will help you determine the optimal percentage split for your unique risk profile.

• Lender Relationship Management: The major banks that raised rates in late 2025 did so independently. Our brokers understand the internal mechanics of each lender and can anticipate which banks are likely to pass on any future cuts (or hikes) to their variable rate customers more quickly or slowly than others.

The recent fixed rate increases are a clear signal that the days of easy money are firmly behind us, and volatility is the new normal. Whether you are looking to fix for certainty, stick with a flexible variable rate, or implement a smart split strategy, your decision requires a precise, professional assessment of your personal circumstances.

Do not gamble your family’s financial future on a guess about the RBA. Let the experts at Seed Loans guide you through this complex landscape, ensuring you secure the best possible home loan structure for the years ahead.

Contact Seed Loans today for a no obligation, comprehensive home loan review. The market has moved; it is time for you to move with it, intelligently and strategically.

Contact SEED LOANS today to start your homeownership journey. Phone: 0403 323 436 Facebook: https://www.facebook.com/SeedHomeLoansMortgageBroker

Please be advised that the information provided in this blog post by Seed Loans (www.seedloans.com.au) is for general informational and educational purposes only. This content reflects current market analysis and economic forecasts as of December 2025 and is subject to change without notice based on future economic data, RBA decisions, and global financial market movements. It is not financial advice. You must not rely on this information to make individual mortgage or financial decisions. The implications of choosing a fixed, variable, or split rate home loan are unique to your personal financial situation, income, expenses, and risk tolerance. Before making any decisions regarding your home loan, you should consult with a qualified and expert mortgage broker from Seed Loans and an independent financial advisor or accountant to obtain personalised, professional advice tailored to your specific needs. Seek professional guidance immediately.