Interest rate uncertainty hits developers

 

Written by David Lovato – CPC Development Lending Solutions

January 2026

Australia’s interest rate outlook has taken a turn, with economists now split on whether the Reserve Bank of Australia (RBA) will cut, hold or increase the cash rate in 2026. This uncertainty represents a significant shift from just 12 months ago, when the consensus accurately predicted rate cuts throughout 2025.

For developers, this adds fresh cost pressures to already tight project feasibilities. 

While the market saw three interest rate cuts in 2025, bringing the official cash rate to 3.60%, the pivot many developers hoped for has hit a roadblock. Recent economic data and expert forecasts suggest that instead of further relief, the industry must now brace for a “higher-for-longer” interest rate environment – and potentially even a return to tightening.

According to The Australian Financial Review’s latest quarterly survey of 38 major economists, 17 now expect at least two rate increases over the next 18 months. Seven economists, including those from the Commonwealth Bank and NAB, predict the RBA could hike as early as February’s policy meeting. 

What’s causing the uncertainty?

The catalyst for this hawkish shift is stubbornly persistent inflation. After annual trimmed mean inflation (the RBA’s preferred measure) unexpectedly jumped to 3.3% in October, the RBA flagged that rate increases remained on the table. 

The latest November inflation data offered modest relief, according to the Australian Bureau of Statistics, with trimmed mean inflation declining from 3.3 to 3.2%, although still well above the central bank’s 2-3% target band.

What does this mean for developers?

This potentially higher-for-longer rate environment creates intense pressure on project feasibility. Every increase in borrowing costs directly impacts development margins, turning previously viable projects marginal or even unviable. 

Additionally, construction costs have remained elevated and are expected to rise further in 2026, with project advisory firm WT predicting a 5.2% increase. 

When interest rates remain elevated alongside rising material and labour costs, the margin for error disappears. As a result, lenders can become more cautious. CBRE’s lender sentiment survey for the second half of 2025 found that elevated construction costs were the biggest challenge facing Australia’s lending environment. 

Choosing the right lender

Despite the pressure, opportunities remain for developers who can present financially robust, well-located projects. Those that can factor in realistic contingencies for labour, material costs and interest rate fluctuations are well placed to secure funding and deliver on time. 

However, even with this preparation, choosing the right lender has never been more important. Generic, one-size-fits-all lending approaches simply don’t work when margins are tight and market conditions vary significantly across locations and projects. Developers need lenders who genuinely understand the specific markets they’re operating in – lenders with in-house expertise to properly assess the fundamentals of good projects in strong locations.

But how do you, the developer, identify an appropriate lender? That’s where a specialist broker comes in, connecting you with lenders who have the in-house expertise to properly assess the fundamentals of good projects in strong locations. 

Smaller developers, in particular, can benefit from the expertise of specialist brokers like CPC, who will align projects with lenders that understand your market perspective and project feasiblity.

Beyond connecting developers with lenders who understand market conditions, CPC know how to structure and package loan applications to highlight project feasibility, margins and risk management – increasing the likelihood of approval and keeping developments viable despite elevated borrowing costs.

You can read more about how CPC approaches development finance in our CPC Lending Solution’s Development Lending Guide.

CPC Lending Solutions helps developers navigate funding in a higher-for-longer rate environment. If you’re planning a residential or mixed-use project, contact CPC at info@crowdpropertycapital.com.au or submit an enquiry to structure your finance with confidence.