Rate Hikes Have Cut $90k from Buyer Borrowing Power
Four rate rises since February have stripped nearly $90,000 from the average buyer's borrowing capacity, and a meaningful housing recovery is not imminent.
Tim Lawless, Research Director at Cotality, has put a precise number on the damage: the four cash rate increases since February 2026 have reduced borrowing capacity for a household on a median income by almost $90,000 — equivalent to around a 9 per cent decline in purchasing power.
That figure, reported by Property Update, is worth sitting with. Almost $90,000 is not a rounding error. For a first home buyer trying to get into the market, it can be the difference between buying the home they want and compromising on location, size or both. For an existing borrower, it means the refinance options available a year ago may no longer be on the table.
How Much Has the Housing Market Already Moved?
Cotality's national Home Value Index peaked in March 2026 — just one month after the commencement of the current rate hiking cycle in February. Since then, housing values have trended lower as borrowing capacity has reduced, affordability pressures have intensified and recent taxation policy changes have weighed on demand across some market segments.
The Reserve Bank's decision on 29 September to raise the cash rate to 4.60 per cent — its fourth increase of the year and the highest level since November 2011 — is expected to place additional downward pressure on housing demand, extending the slowdown that has gathered pace through 2026.
The toll on household balance sheets is real. Housing debt sits at 134.9 per cent of household disposable income as of the June quarter, based on household finance data cited by Lawless. That means many borrowers carry debt nearly 1.35 times their annual after-tax income — before food, utilities, childcare or any other living cost. At today's interest rates, servicing that debt is materially more expensive than it was even 12 months ago.
For many households, higher mortgage repayments are adding to already significant cost-of-living pressures.
When Could a Housing Market Recovery Begin?
Property Update reports that a meaningful housing market recovery is unlikely until borrowers gain confidence that interest rates have reached their peak and will eventually begin to fall. Until that confidence takes hold, housing demand is likely to remain weak, reflected in further value declines and below-average turnover.
Should the RBA follow today's move with another increase in November, housing conditions would likely weaken further through an additional reduction in borrowing capacity and further deterioration in home loan serviceability and buyer sentiment. Housing turnover is likely to remain below average as both buyers and sellers adjust to a prolonged period of elevated borrowing costs.
The one meaningful counterweight is supply. Ongoing supply constraints should help contain the extent of any downturn — which means the market is not headed for a cliff, but a recovery is not imminent either.
If you want to model what today's rates mean for your own situation, the borrowing power calculator shows you what a lender will advance at current rates and serviceability requirements. If you have an existing loan and are wondering whether refinancing is still feasible, the refinance savings calculator can show you whether switching lenders would reduce your monthly repayments.
What This Means for First Home Buyers and Investors
For first home buyers, the borrowing capacity squeeze is the central challenge. At 9 per cent below where it was before February, the maximum loan a buyer can access on the same income has shrunk significantly. The practical effect is that buyers either need to spend less, save a larger deposit, or wait. Each of those paths has a cost — more time, a smaller or less central property, or both.
For investors, the pressure is particularly acute. Australian Bureau of Statistics data shows the number of investor loans fell 8.6 per cent in the June quarter of 2026, the largest fall since the September quarter of 2022. Higher borrowing costs, combined with falls in property values, have changed the investment calculus substantially. Investor loan demand has eased sharply over the year.
That said, investors who have a clear long-term horizon and are not relying on short-term capital growth tend to navigate rate cycles with more confidence. Properties that generate strong rental yield relative to their purchase price can remain viable assets in a higher-rate environment — the key is running the numbers with current rates and realistic assumptions, not the assumptions that applied in 2024.
If you are an investor weighing your options, see current loan rates on the investor home loans page. First home buyers can check eligibility and support options on the first home buyer page.
The full analysis from Tim Lawless is available at Property Update.