Interest Rates Hike & CGT Policy Change — What That Means for WA Property

In early February 2026, the Reserve Bank of Australia (RBA) raised the official cash rate by 0.25 percentage points to 3.85%, marking the first rate increase in over two years as inflation pressures returned stronger than expected.

This decision reverses a long period of accommodative monetary policy that saw the RBA cut rates multiple times through 2025 — largely to stimulate the economy and ease mortgage stress.  But with inflation lingering above the RBA’s target band and household spending holding firm, the Bank judged that tighter monetary conditions are needed to keep price growth in check.

What does this mean for the average Western Australian buyer?

• Higher borrowing costs: With the cash rate rising, major lenders including Commonwealth Bank, Westpac, ANZ and NAB have passed through rate increases to home loan customers.  This pushes up monthly repayments, which squeezes borrowing capacity and can cool buyer enthusiasm.

• Reduced borrowing power: Recent analysis suggests that a typical Australian borrower could see their maximum loan amount drop by around $13,000 after just this one rate increase — with further increases potentially reducing it even more.

• Investor sentiment cooling: Higher interest rates tend to make investment property less attractive relative to other asset classes, which could reduce investor demand in some segments of the WA market.

  
  

But while rate hikes introduce a headwind, WA’s market has already shown resilience, particularly in regional hubs like Kalgoorlie–Boulder, Geraldton and Albany, where dwelling values have maintained strong growth amidst shifting conditions.

In metropolitan Perth, growth has been comparatively slower recently, and affordability constraints have slightly dampened buyer demand — even before the rate increase.

Overall, rising rates tend to create a cooling effect, slowing price momentum and buyer activity compared with a low-rate environment. But in a market with tight supply — particularly in WA’s coastal and regional centres — rate rises alone may not be enough to trigger broad price declines.

CGT Changes on the Horizon — A Major Shift in Policy?

Alongside interest rate volatility, another policy development has been gaining attention: potential reform to Australia’s capital gains tax (CGT) discount, especially as it applies to property investors.

Australia’s CGT system currently offers a 50% discount on taxable capital gains for assets held longer than 12 months — meaning only half the profit on the sale of an investment property is taxed.

In February 2026, the Albanese Government signalled it was considering changes to this discount ahead of the May Budget, as part of broader discussions on housing affordability and tax reform.

The specifics aren’t yet finalised, but some discussions in policy and media circles point to options such as:

• Reducing the CGT discount for property investors — possibly to 25%, at least for new acquisitions or over a transition period.

• Limiting how many investment properties a single investor can claim the discount on, or creating exemptions for long-held or small portfolios.

Supporters of reform argue that changing CGT settings could rebalance incentives away from speculative investment property buying and make way for first-home buyers and owner-occupiers.  But critics warn that cutting tax breaks could deter investment, reduce rental supply, and even push rental costs higher — especially if investors decide to exit the market.

Importantly, the government has not yet decided on a specific policy, and both the Treasurer and Housing Minister have in recent media engagement emphasised that housing supply remains a priority over tax tinkering — though CGT change is on the table for discussion. 

Combined Impact on the WA Market

Taken together, rising interest rates and potential CGT reform create a complex set of incentives for market participants in Western Australia:

1. Buyers (especially first home buyers):

• Higher mortgage costs make saving for a deposit and servicing loans more difficult.

• But potential CGT changes might reduce competition from investors, opening up more opportunities for owner-occupiers — particularly in entry price brackets.

2. Investors:

• Tighter cash flow due to rising rates could reduce investor demand.

• If CGT concessions shrink, the after-tax return on investment properties could become less attractive — potentially slowing investor activity or leading to repositioning within portfolios.

3. Sellers:

• Those contemplating selling in a higher-tax environment might accelerate decisions to exit before reforms take effect — increasing listings.

• Conversely, some current investors may hold off selling until policy clarity emerges.

4. Rental Market:

• Reduced investor participation could tighten rental supply, especially in sought-after Perth precincts and popular regional centres.

• This may translate to stronger rental growth, even if house price growth moderates.

5. Regional WA resilience:

• Regional markets such as Geraldton, Kalgoorlie and Albany have outpaced metropolitan growth recently, thanks to affordability, lifestyle demand and constrained supply dynamics.

• These areas may continue to see robust buyer interest even amid broader tightening conditions.

  
  

Key Takeaways for WA Property Stakeholders

✔ Interest rates are no longer in a cutting cycle — further hikes may be on the table if inflation remains stubborn. ✔ Investor tax settings (CGT) could be reformed this year, with potential changes to the discount affecting investment returns and housing demand. ✔ WA’s market shows pockets of strength — particularly in regional centres — but faces headwinds in borrowing costs and affordability. ✔ Policy outcomes (rates + tax) will shape investor strategy and buyer opportunity throughout 2026 and beyond.

If you’re planning to buy, sell or invest in WA property this year, staying across policy developments, lender pricing behaviour, and market sentiment will be crucial in refining your timing and strategy.