Mortgage holders warned as Westpac forecasts cash rate to hit 18-year high

Borrowers could be in for a tough couple of years, says canstar.com.au’s data insights director Sally Tindall.

Australia faces its highest cash rate since the Global Financial Crisis as one of the big banks predicts aggressive RBA action that could devastate homeowners.

Westpac this week upped its cash rate forecast for the year, tipping the RBA will deliver three further rate hikes in 2026, adding hundreds of dollars to the average mortgage repayment.

The bank now expects the RBA to increase the cash rate by 0.25 in May, June and August, making it a total of five hikes in as many meetings.

Australia potentially faces its highest cash rate since the Global Financial Crisis. Picture: NewsWire / John Appleyard

This would take the cash rate to 4.85% – a level not seen since November 2008, when the cash rate was coming down on the back of the Global Financial Crisis (GFC).

Westpac has said the prolonged disruption to fuel supply, the faster-than-expected pass-through to goods and services and the RBA’s restrictive policy stance will push the cash rate to 4.85% by August, despite the temporary halving of the fuel excise.

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

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Westpac has tipped three further rate hikes this year.

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

If the hikes play out as Westpac expects, someone with a $600,000 mortgage at the start of the hikes, would end up paying an extra $3,280 in monthly repayments in 2026, compared to if there had been no hikes this year.

On a $1m mortgage, it would be approximately $5,466 extra for the year in monthly repayments and even more in interest charges.

Borrowers could be in for a tough couple of years. Picture: NewsWire / John Appleyard

“Borrowers could be in for a tough couple of years if Westpac’s forecast for three further hikes and no rate cuts til 2028 comes to pass,” said canstar.com.au’s data insights director Sally Tindall.

“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.

“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.

“The government might have tried to soften the blow by halving the fuel excise, however, if the RBA then goes and hikes the cash rate, it could turn into a merry-go-round of money passed from the bowser to the banks.

Westpac is forecasting the cash rate to hit levels we haven’t seen since the fallout from the GFC.

“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.

“Even if you’re not ready to switch lenders, it’s worth negotiating with your bank.

“In a competitive market, loyalty doesn’t pay – but a simple phone call asking for a sharper rate might.”