The ‘Lock-In Effect’: How High Interest Rates Are Reshaping Seller Behaviour in Australia

Across Australia, something unusual is happening. Despite steady buyer demand, new listings remain tight, and many homeowners are staying put.

Welcome to the ‘lock-in effect’, a growing trend reshaping the real estate landscape in 2025. With interest rates holding steady well above the ultra-low levels of 2020-2021, many Australians who secured cheap fixed-rate loans during the pandemic are hesitant to sell and re-enter the market at today’s higher rates.

The result? Fewer homes on the market, upward pressure on prices, and strategic opportunities for those ready to move.

What Is the Lock-In Effect?

The lock-in effect refers to the phenomenon where existing homeowners hold onto their current mortgage and property because selling would mean taking on a new loan at a significantly higher interest rate.

For example, a homeowner who locked in a 2% fixed rate in 2021 may now face a variable rate closer to 6%. Even if they want to upsize or relocate, the financial trade-off often feels too steep

This has created a ripple effect across the market:

• Lower stock levels in many capital cities

• Delayed decision-making from would-be sellers

• Increased competition for quality homes

• A noticeable shift in property strategies

Who’s Affected and How?

Homeowners

Rather than relocating, many homeowners are choosing to renovate – adding extensions, updating kitchens, or creating more flexible spaces. Others are holding off entirely, waiting to see if rates drop before making a move.

Buyers

While the RBA’s pause on further hikes has helped stabilise buyer confidence, reduced stock is fuelling fierce competition, especially in lifestyle suburbs, school catchments, and well-connected areas. Buyers are acting fast, often stretching budgets or compromising on their wishlists.

Investors

Investor activity varies by region. In Sydney and Melbourne, some are still sitting on the sidelines due to serviceability constraints. However, in markets like Perth and Adelaide, where rental yields are rising and vacancy rates are tight, some investors are re-entering to take advantage of favo urable conditions.

Market Impacts in 2025

The lock-in effect is contributing to a property paradox:

Even with affordability pressures, home values in many areas are holding firm or climbing, driven by limited supply and emotionally motivated buyers.

According to CoreLogic data from April 2025:

• Listing volumes remain well below average in Sydney, Melbourne, and Brisbane

• Time on market is decreasing, with well-priced homes attracting quick offers

• Buyer activity is strongest in suburbs with lifestyle appeal, transport access, and quality schools

In this environment, sellers who do choose to list are finding themselves in a stronger-than-expected position.

What Sellers Should Consider Right Now

If you’re thinking about selling in 2025, here’s what to keep in mind:

• Low stock = less competition

• Buyer demand remains strong in high-appeal suburbs

• Many buyers are emotionally driven – seeking space, lifestyle, or school zones

• Well-presented homes are still achieving premium prices

That said, timing and preparation matter. Understanding your equity, refinancing options, and how your current mortgage compares to the market is essential to making a smart next move.

Ride the Shift, Don’t Resist It

The lock-in effect might be slowing the pace of change for some, but for those willing and able to act, it’s creating a rare window of opportunity. In a tight market, standing out is easier, and selling well is still very achievable.

Unsure whether to stay, sell, or refinance?

Speak to your local Century 21 agent for tailored advice, property appraisals, and expert support in navigating today’s market with confidence.