RBA Lifts Cash Rate to 3.85% – What This Means for Borrowers and Buyers
Reserve Bank of Australia (RBA) Lifts Cash Rate to 3.85% – What This Means for Borrowers and Buyers
On 3 February 2026, the Reserve Bank of Australia’s Monetary Policy Board announced a 25 basis point increase to the cash rate, taking it to 3.85%.
This move reflects growing concern that inflation, while well down from its 2022 peak, has picked up again in the second half of 2025 and is likely to remain above the RBA’s target range for some time.
Why did the RBA raise rates?
In plain English, the RBA is seeing signs that the economy is running hotter than expected:
Household spending and private investment have been stronger than forecast
Housing prices and activity are continuing to lift
Credit remains readily available, meaning previous rate cuts are still flowing through the economy
The labour market remains tight, with low unemployment and strong wage growth
Capacity pressures (how hard the economy is working) are building
In short, demand is growing faster than the economy’s ability to supply, which risks keeping inflation higher for longer.
What does this mean for interest rates?
For most variable-rate borrowers, this decision is likely to translate into higher mortgage repayments once lenders pass the increase on.
For fixed-rate borrowers, this doesn’t change your current rate — but it does reinforce that rate relief may be slower and more uneven than many had hoped.
The RBA made it clear that:
It is not yet certain that inflation is under control
Monetary policy may need to remain restrictive
Future decisions will be data-dependent, not on a preset path
What does this mean if you’re buying or refinancing?
This decision doesn’t mean you should panic — but it does mean strategy matters more than ever.
At Best Foot Forward Mortgage Solutions, we’re seeing:
Greater importance is placed on lender selection (policy matters just as much as rate)
More borrowers are benefiting from professional loan structuring — for example, fixing a portion of the loan while keeping the remainder variable. This allows borrowers to continue using their offset account buffers, while also protecting part of their loan from any further interest rate rises.
Increased value in longer-term planning, not just chasing the lowest headline rate.
Our take
This rate rise is a reminder that the RBA is serious about controlling inflation, even if that means keeping pressure on borrowers for longer.
The good news?
Strong employment, rising incomes, and continued housing demand mean opportunity still exists — provided you structure your lending correctly and plan with the medium to long term in mind.
If you’d like to understand how this decision impacts your borrowing capacity, repayments, or strategy, we’re here to help, you can book a discovery call with Shona Stephenson, and she can help you explore your options.
What have we been helping our clients with this week?
A lot — and it’s a great snapshot of why strategy matters more than ever right now.
🏡 Purchasing with a low deposit
We’re working with lenders who offer loans of up to 95%, including for non-scheme borrowers, investors and non-first-home buyers. Low deposit doesn’t have to mean limited options — if you know where to look. The best part was that our clients application for a pre-approval was approved in less than 24 hours!
✨ First Home Buyers & the Home Guarantee Scheme (HGS)
If you’re a first-home buyer, this is where we really shine.
We help eligible clients access the Home Guarantee Scheme with just a 5% deposit, where the Australian Government guarantees up to 15% of the loan.
That means:
An effective 80% LVR Interest Rate instead of 95% Interest Rate.
No LMI saving our clients $10,000 - $20,000+
📊 Self-employed borrowers
We’re helping self-employed clients increase borrowing capacity using:
Add-backs
IAWO
Depreciation
Company profits added to director wages
The right lender + the right presentation can make a huge difference.
🧾 Contractors
We’ve recently helped a contracting client with just 6 months with one employer significantly increase their borrowing capacity, as servicing was assessed on their current contract, not a two-year average. The best part - their home loan was conditionally approved in 26 minutes with their lender.
🔋 Planning around retirement & exit strategies
We’re structuring loans with clear exit strategies, helping clients:
Refinance to upgrade solar and battery systems
Split loans so solar debt is repaid over 10 years instead of 30
Future-proof themselves as they move into the final decades of their careers
🔄 Refinancing — unsure if it’s “the right time”?
We’re helping clients:
Lock in fixed rates where it makes sense
Switch to more competitive lenders
Achieve sharper rates and better long-term outcomes — even in a higher rate environment
If any of this sounds like you, it’s probably time for a conversation.
📩 Get in touch with Best Foot Forward Mortgage Solutions
Because moving forward with confidence matters — especially in changing conditions.
