Five rate rises later: why your borrowing power has dropped, and how to win some back

If you got a pre-approval earlier this year, or worked out your budget before the latest rate rises, the number you're working with has probably shrunk. Here's why five rate rises have cut how much first home buyers can borrow, by how much, and what you can do to win some of it back.

Why rate rises cut your borrowing power

When a lender works out how much you can borrow, it doesn't test your repayments at the rate you'll actually pay. It adds a buffer of 3% on top, then checks you could still afford the loan at that higher rate. This is a rule set by the banking regulator, APRA.

So when rates rise, the test rate rises too. Your income hasn't changed, but the lender now assumes each dollar you borrow costs more to repay, so the maximum loan comes down.

The RBA has raised the cash rate five times in 2026, by 1.25% in total. Lenders have generally passed these rises on to borrowers.

How much less you can borrow now

Here's a simplified example for three typical households, comparing borrowing power at the start of 2026 with today:

Household	Start of 2026	Now	Difference
Single, $90,000 income	about $463,000	about $414,000	about $49,000 less
Couple, $150,000 combined	about $859,000	about $768,000	about $91,000 less
Couple, $200,000 combined	about $1,209,000	about $1,080,000	about $128,000 less

Simplified illustration: no dependants, no other debts, typical living costs, 30-year principal and interest loan, assessed with a 3% buffer on typical variable rates before and after this year's rises. Every lender calculates borrowing power differently, so your figure will vary.

In each case that's roughly a 10–11% drop, without a single change to the household's income or spending.

Your income didn't change. The test did.

Ways to win some of it back

You can't change the buffer, but you can change some of what goes into the calculation.

• Cut or close credit card limits. Lenders count your card limit, not your balance, as if you owed a repayment on it every month. In our example, a $10,000 limit you never use reduces borrowing power by about $45,000.

• Clear small debts before you apply. Car loans, personal loans and buy now pay later accounts all take a bite out of what you can borrow. Paying off a small one can be worth more than the same money added to your deposit.

• Get your income on record properly. Lenders treat overtime, bonuses, allowances and second jobs differently. Making sure everything you earn is documented the way your lender wants can lift your borrowing power.

• Use the government's 5% Deposit Scheme. It doesn't change how much you can borrow, but it means you can buy with a 5% deposit and no lenders mortgage insurance, up to $850,000 in Perth and $600,000 in regional WA. That lets you buy sooner instead of chasing a bigger deposit while borrowing power falls.

• Consider a family guarantee. A parent can use equity in their home as extra security. It won't raise your borrowing power on its own, but it can remove the need for a large deposit and LMI.

• Compare lenders. Lenders assess living costs, income types and debts differently. The same household can get noticeably different answers from different lenders, and that gap matters more when budgets are tight.

Already have a pre-approval?

Pre-approvals usually last around 90 days and are based on the rates at the time they were issued. If yours was issued before a rate rise, get it re-checked before you make an offer. Finding out your limit has dropped after you've signed a contract is the situation to avoid.

The other side of the picture

Lower borrowing power isn't the whole story. Perth prices have been easing and investors have pulled back sharply this year, which means less competition at open homes for first home buyers. A smaller loan can still buy well when there's room to negotiate. The key is knowing your real number before you start looking.

What can you actually borrow today?

I'll work out your current borrowing power across around 30 lenders, show you what's holding it back, and tell you which of the steps above would make the biggest difference for you.

Call Ian on 0439 365 365 or take the free Home Loan Readiness Check.

This article is general information only and doesn't take into account your objectives, financial situation or needs. Consider whether it's appropriate for you and seek advice before acting. Scheme price caps should be confirmed on the official Housing Australia website. Information is current as at 9 November 2026.

Credit Representative Number 439731 of Australian Credit Licence 384704.