Let’s be honest — the cost of living conversation in Australia has gone from background noise to the main event. Whether you’re a first home buyer trying to save a deposit, a homeowner managing a mortgage that’s climbed significantly over the past few years, or a family just trying to stretch the weekly grocery budget — the pressure is real, and it’s being felt right across the country.
At Trusted Financial Choice, we work with clients from all walks of life, and the single most common theme we hear right now isn’t “I want to buy a bigger home” or “I’m ready to invest.” It’s simply: how do I stay on top of everything when everything keeps going up?
So let’s break it down — what’s actually driving the cost of living in Australia right now, what it means for your finances, and importantly, what you can do about it.
What is “cost of living” and Why Does it Keep Coming Up?
The cost of living refers to the total amount of money needed to cover basic expenses; housing, food, transport, healthcare, education, utilities, and everything in between. When we say the cost of living has risen, we mean that the same basket of goods and services costs noticeably more than it did a few years ago.
In Australia, annual inflation peaked at 7.8% in the December quarter of 2022 — the highest level since 1990. While it moderated through 2023 and into 2025, inflation has picked up again more recently, with the ABS reporting the annual CPI rising to 4.6% in the 12 months to March 2026, driven by sharp increases in transport (up 8.9%), housing (up 6.5%), and food (up 3.1%). The RBA’s trimmed mean inflation remains at 3.3% — still above the 2–3% target band.
Prices don’t tend to fall back just because inflation slows. They simply rise more slowly. That means most Australian households are still absorbing the full cumulative impact of those price increases every single day.
Housing: The Biggest Pressure Point for Most Australians.
There’s no avoiding it; housing is the dominant cost for most Australian families, and it’s been under enormous pressure.
For homeowners with a variable mortgage, the story has been a rollercoaster. The RBA commenced a rapid hiking cycle in May 2022, lifting the cash rate from a historic low of 0.10% all the way to 4.35% by November 2023 — a total increase of 4.25 percentage points across 13 consecutive rate moves. The average outstanding mortgage rate increased by around 320 basis points between May 2022 and December 2023 alone. The RBA then delivered three rate cuts in 2025, bringing the cash rate down to 3.60% by August — but those cuts have since been fully reversed. As of May 2026, the RBA has hiked rates three times this year, returning the cash rate to 4.35%. For borrowers, this means the brief period of repayment relief from 2025 has effectively been undone.
For renters, conditions remain extremely tight. According to Cotality’s December 2025 Quarterly Rental Review, Australian rents rose 5.2% across 2025 — well above the rate of inflation — pushing the national median rent to $681 per week. Sydney remains the most expensive rental market at $817 per week median, with the national rental vacancy rate sitting at just 1.7% — roughly half the pre-COVID decade average of around 3.3%.
For first home buyers, the challenge is a double squeeze; property prices remain elevated in most capital cities, while the cost of living has made it harder to save a meaningful deposit in the first place.
The good news is that there are strategies from government schemes to loan structuring — that can genuinely make a difference. More on that later.
Groceries, Utilities and Everyday Expenses
Grocery inflation hit Australian households hard coming out of the pandemic years. The cost of fresh produce, meat, dairy, and pantry staples climbed sharply, and while some of that pressure has eased, weekly grocery bills remain meaningfully higher than they were in 2021.
Electricity and gas costs have also remained elevated. Energy prices remain a major component of the current CPI, with housing-related costs — which includes utilities — contributing 6.5% to annual inflation in the 12 months to March 2026. Fuel is another significant pressure point, with transport costs surging 8.9% annually in the same period, partly driven by rising oil prices linked to geopolitical tensions in the Middle East.
Then there’s childcare, private school fees, health insurance premiums, and car insurance; categories that tend to increase year on year regardless of the broader economic environment. When they all move upward at the same time, the impact on a household’s financial position can be significant.
What This Means for Your Mortgage and Borrowing Capacity
If you’re looking to buy, refinance, or simply review your current loan structure, the cost-of-living environment directly affects how lenders assess your application. Australian lenders use what’s called a serviceability assessment — they look at your income against your declared living expenses and existing debts to determine whether you can comfortably meet repayments.
The current rate environment is also worth being clear-eyed about. After three cuts in 2025, the RBA has raised rates three consecutive times in 2026, reversing that easing cycle. The cash rate now sits back at 4.35%, and with inflation still running above target at 4.6% annually, further moves remain on the table.
That said, there are still meaningful things borrowers can do:
- Review your current loan. Lender competition remains active, and even in a higher-rate environment, the difference between lenders can be material. Many borrowers haven’t reviewed their rate in over a year.
- Assess your loan structure. Are you on the right mix of variable and fixed? Is your offset account working efficiently? Small structural adjustments can make a real difference over time.
- Consider refinancing. An independent review across a broad panel of lenders — rather than going directly to your existing bank — can often surface better options than you’d expect.
Government Schemes That Can Help Right Now
One of the most significant ways to navigate the current environment — particularly for first home buyers — is making use of government support schemes that are available right now.
The Australian Government 5% Deposit Scheme (formerly the Home Guarantee Scheme) allows eligible first home buyers to purchase with as little as a 5% deposit, with the government guaranteeing the remaining 15% so you avoid paying Lenders Mortgage Insurance (LMI). From 1 October 2025, the scheme was expanded significantly — there are now no income caps, no place limits, and no waitlists. This is the most accessible the scheme has ever been. Property price caps have also been raised, with Victoria (Melbourne and Geelong) now set at $950,000.
The Help to Buy Scheme opened for applications in December 2025. The Federal Government can contribute up to 40% of the purchase price on a new home (or 30% on an existing home), significantly reducing the loan you need. A minimum 2% deposit applies, with income caps of $100,000 for singles and $160,000 for couples. Because the government holds a share in the property, it also participates in any future gain or loss when you sell or buy out its equity.
The First Home Super Saver Scheme (FHSSS) allows eligible first home buyers to make voluntary super contributions — up to $50,000 total — and withdraw those funds along with associated earnings to put toward a home deposit. It’s a tax-effective way to build your deposit faster and is worth exploring if you’re still in the savings phase.
Practical Steps to Stay Ahead Financially
Beyond the big-picture economic picture, there are practical steps Australians can take right now.
- Review your home loan. With the rate environment having shifted considerably, there’s a real chance your current loan isn’t as competitive as it could be. A mortgage review doesn’t have to lead to a refinance — but it should inform whether one makes sense.
- Get your budget current. The budgets most people set in 2021 or 2022 don’t reflect today’s living costs. A realistic, up-to-date budget is the foundation of sound financial planning.
- Think about asset and equipment finance strategically. For business owners, using the right finance structures for vehicles, equipment, and machinery — rather than tying up cash — can preserve working capital and ease cash flow pressure.
- Speak to an independent broker. At TFC, our job is to match your situation to the right lender and structure — not to push a particular product.
A Note on SMSF and Investment Property
For those with Self-Managed Super Funds, the ability to hold commercial property inside your SMSF and lease it back to your operating business at market rates remains one of the more tax-effective structures available to business owners. With rents rising and vacancy rates nationally remaining very low, the long-term income case for property investment through an SMSF continues to hold up well — provided the fund is correctly structured and can genuinely support the debt.
The Bottom Line: You Don’t Have to Navigate This Alone
The cost of living in Australia is genuinely challenging right now — and the interest rate environment has added another layer of complexity in 2026. But it’s also a moment where having the right financial structure, the right loan, and the right advice makes a bigger difference than it did when rates were at historic lows.
At Trusted Financial Choice, we’ve been helping Australians make smart lending decisions since July 2021; through rising rates, brief cuts, and rising rates again. We’re Melbourne-based but support clients nationally, and we bring genuine depth of experience to every conversation.
If your mortgage feels like it’s working harder than you are, or you’re wondering whether now is the right time to buy, refinance, or restructure — let’s talk.
Get in touch with the TFC team today. Fill in our Contact Us form online or call our office directly.
Disclaimer: Trusted Financial Choice is an authorised Australian Credit Licence holder (541023) operating under RG INVEST Pty Ltd ACN 642 752 903. This article is general in nature and does not constitute financial advice. Please speak with a qualified broker or adviser to understand how these matters apply to your individual circumstances.
References
- ABS — Consumer Price Index, Australia, March 2026 — https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release
- Australian Treasury — Inflation Moderates to Two-Year Low (Dec 2022 peak at 7.8%) — https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/inflation-moderates-two-year-low
- Reserve Bank of Australia — Cash Rate Target history — https://www.rba.gov.au/statistics/cash-rate/
- RBA Bulletin April 2024 — Cash Rate Pass-through to Outstanding Mortgage Rates — https://www.rba.gov.au/publications/bulletin/2024/apr/cash-rate-pass-through-to-outstanding-mortgage-rates.html
- RBA — Statement by the Monetary Policy Board, August 2025 (cash rate held at 3.60%) — https://www.rba.gov.au/media-releases/2025/mr-25-33.html
- Trading Economics — Australia Interest Rate (May 2026 hike, third consecutive hike) — https://tradingeconomics.com/australia/interest-rate
- Canstar — RBA Cash Rate tracker (2025 cuts and 2026 hikes) — https://www.canstar.com.au/home-loans/rba-cash-rate/
- Cotality — Quarterly Rental Review December 2025 (median rent $681/week, 5.2% rise) — https://australianpropertyupdate.com.au/apu/more-bad-news-for-australian-tenants-as-rents-rise-again
- ABS — Latest Insights into the Rental Market (peak 8.5%, moderated to ~5.5% by April 2025) — https://www.abs.gov.au/articles/latest-insights-rental-market
- Housing Australia — Unlimited places & higher price caps from 1 October 2025 — https://www.housingaustralia.gov.au/media/unlimited-places-higher-property-price-caps-first-home-buyers-1-october-2025
- Prime Minister of Australia — 5% deposits for all first home buyers (no income caps, no place limits) — https://www.pm.gov.au/media/albanese-government-delivers-5-deposits-all-first-home-buyers-sooner
- Housing Australia / First Home Buyers — Help to Buy Scheme (open Dec 2025) — https://firsthomebuyers.gov.au/australian-government-5-percent-deposit-scheme