What to expect from property in 2026

Rates going up

There are many things we can control in our portfolios. The whims of the Reserve Bank are not one of them. There was much talk towards the end of 2025 that interest rates may be going back up again.

While we welcomed the relief we saw in 2025, inflation remains stubborn. Unfortunately this is the key indicator the central bank uses to set rates. That’s why the major banks such as CBA and NAB are flagging potential hikes back toward 3.85% or 4.10% to keep the economy in check.

If rates do go up, it’s the middle-to-upper market which usually cools first. However, the bottom end stays hot because first-home buyers are desperate to escape the “rental crisis.”

Whether rates go up, down or stay the same, it is important to be prepared. The best protection against rising rates starts by stress-testing your portfolio against a 2% rate buffer. If a jump that high will cause significant stress, start aggressively building a cash reserve. Ideally, 3 to 6 months of mortgage repayments held in an offset account.

Yield vs Capital growth

Low vacancy rates boost yields, while constrained supply and investor return could drive capital growth, especially in well-located areas.

Now that entry level has a new definition, 2026 will require a more strategic approach to building wealth through property. Yields will now be challenged in the lower end of the market and starting prices being much higher. To build wealth for the long term, it will be key to make a strategic trade-off between rapid capital growth and increasingly compressed rental yields.

The good thing is, Australia’s vacancy rates are still hovering near 1% and don’t look like changing in the short term. This means plenty of quality renters keen to secure housing in desirable locations, putting investors in the driver’s seat.

Getting the balance right will be key. Constructing your portfolio to support the stage in your property journey will give you the best outcomes this year and set you up for the opportunities to come.

Housing Supply Won’t Change

In obvious news to everyone but our various governments, we’re pretty confident the national housing shortage is not expected to be resolved in 2026. With an accumulated shortfall of an estimated 200,000 to 300,000 dwellings from previous years compounding annually, if anything it will probably get worse before it gets better.

The building industry hasn’t recovered from COVID, with elevated construction costs, labor shortages and low dwelling approval levels still impeding the delivery of new homes. Add to that population growth remaining above historical averages and we believe supply will have very little chance of catching up to demand in 2026.

This creates a fantastic opportunity for existing homeowners or investors to capitalise. A great chance to shed underperforming assets or lock in capital growth. With the new entry level pricing likely to remain hot, if you do plan to shed stock ensure your investment property appeals to these buyers.

Properties priced under the regional “price caps” for these schemes are highly liquid assets. If you need to sell to reduce debt, these will be your easiest and most profitable “outs.”

Unlocking Equity, Locking in Growth

The constraints on supply are creating a nice floor for property investors, which won’t be going away in 2026. In addition to this, the revised Home Guarantee Scheme introduced by the Federal Government in October, allowing first home buyers to purchase with only a 5% deposit is only in its infancy.

We have not yet seen the full impacts of this program. It’s only just getting started, with first home buyers playing catch up as they comprehend the opportunity and prepare their own finances to buy. This means the initial surge we’ve witnessed in values of the traditional ‘entry level’ homes is unlikely to go away in 2026. If anything, we imagine this scheme will create an even sturdier price floor for homes in this range as the year progresses.

With a solid floor and growing values, those who have built equity will be well placed to unlock some of that value. This year will also be a great time to capitalise on the capital injection first home buyers have experienced, should owners be looking to sell.

APRA guidelines

One thing lurking on the horizon as we enter the new year are the revised Australian Prudential Regulation Authority (APRA) restrictions. From 1st February 2026, APRA will implement a Debt-to-Income (DTI) cap which limits banks to issuing only 20% of new mortgages with a debt level six times or more than the borrower’s annual income. This will apply separately to owner-occupiers and investors, to curb rising housing risks from lower rates and price growth.

This limit is designed as a guardrail to slow the growth of risky lending before it becomes a widespread problem, rather than a response to an immediate crisis. This move is not expected to heavily impact most borrowers at the moment. If your loan volumes are approaching the 20% cap, it’s worth having a chat about your options. If investor activity surges, there’s also the very real risk that lenders might tighten criteria or adjust pricing for those borrowers stretching their income.

If you are in this situation, knowing the nuances of available lenders will become even more important. As always, reducing non-mortgage debt like credit cards will always help borrowing capacity, as with targeting high-yield properties which might improve the income side of the DTI equation.

Get ready

Predictions are never easy and everyone’s situation is different. However, one thing which remains true today and you can count on for 2026 is that a well managed property portfolio is one of the most reliable vehicles for generating wealth and financial security for your family.

How you go about it will depend on the particular stage in your property journey, but with the right guidance anyone can take advantage of the opportunities which will present themselves this year. They say the best way to predict the future is to make it happen. The key is to be prepared, have your finances ready and know what the right home and the right loan looks like for you.