Borrowing Power Falling Faster Than Prices 2026

If you have been watching house prices soften across Sydney and Melbourne and expecting your first home purchase to feel more achievable, new Canstar analysis has a sobering finding: for most Australians in 2026, borrowing power has been falling considerably faster than prices. Following three consecutive RBA rate hikes this year, a couple on average full-time wages has seen their maximum borrowing capacity drop by just over $71,000 since January - more than double the projected fall in Sydney's median house price for the full year.

What Three Rate Hikes Have Done to Borrowing Capacity

The RBA raised the cash rate in February, March, and again in May 2026, taking it from 3.60% to its current level of 4.35%. Each 0.25% increase reduces how much a bank will lend you, because higher repayments reduce the amount that passes the lender's serviceability test. Under APRA rules, lenders apply a 3% buffer above the rate you actually pay, which means your loan application is assessed against a rate close to 7.35% today.

The cumulative impact on borrowing capacity since January 2026, based on Canstar's modelling:

• Single buyer on average full-time wages: borrowing capacity down approximately $35,800
• Couple on average full-time wages: borrowing capacity down just over $71,000

These figures, published by Canstar and also covered by Mortgage Professional Australia and Australian Broker News this week, represent the compounded effect of three rate moves in five months. For buyers who formed their budget expectations at the start of the year, the shift is material.

Why Falling Prices Are Not Closing the Affordability Gap

The natural assumption is that softer prices offset the hit to borrowing power. In Sydney and Melbourne - the two cities recording the largest price falls of 2026 - the numbers do not support that conclusion.

Canstar's analysis projects Sydney's median house price could fall by approximately $30,000 by the end of 2026, and Melbourne's by around $18,000. Set those figures against the borrowing capacity losses above: a couple has lost roughly $71,000 in what a bank will lend them, while Sydney prices have softened by around $30,000. The gap between what buyers can borrow and what they need to borrow is widening, not narrowing.

SBS News recently covered this disconnect in an article asking, "House prices are falling. So why are many Australians still struggling to buy?" The short answer is that even a meaningful price reduction can be outpaced by the reduction in loan eligibility that comes with higher interest rates.

It is worth noting that conditions vary significantly by city. Perth is a different story, with median prices forecast to rise by approximately $39,000 this year, and Brisbane by around $32,000. For buyers weighing up location, these divergences are part of the picture.

What the June 16 RBA Decision Could Mean

The RBA's next meeting is on 15-16 June 2026, with the decision expected at 2:30pm on June 16. Most major bank economists currently forecast the cash rate will hold at 4.35%, though there is no consensus. Westpac still has additional hikes in its forecast for later in 2026.

If the cash rate rises again, the impact on borrowing capacity compounds. Canstar estimates that under a two-more-hikes scenario, a single buyer could lose approximately $57,600 in total borrowing capacity this year - roughly 10% of a $600,000 buying budget.

A rate hold on June 16 would provide some breathing room. It would not reverse the borrowing capacity losses already locked in from the first three hikes, but it would stabilise the baseline that lenders are using to assess applications.

What This Means for First Home Buyers

The current environment has several practical implications worth considering if you are saving for or actively planning your first purchase.

• Any pre-approval from before February 2026 may no longer reflect what you can borrow. Running a fresh estimate gives you an accurate picture of where you stand under today's rates and serviceability rules.
• Government schemes reduce the loan size required. The First Home Guarantee (5% deposit, no LMI) and Help to Buy (government equity contribution of up to 30% of the purchase price) both mean you need a smaller mortgage. Smaller loans are less affected by serviceability constraints at higher rates.
• State grant deadlines are approaching. Queensland's $30,000 First Home Owner Grant and Tasmania's stamp duty exemption both end on June 30, 2026 - less than 20 days away. These benefits could meaningfully offset some of the purchasing pressure created by higher rates.
• Model your repayments across scenarios. A 25 to 30-year mortgage will span multiple rate cycles. Stress-testing your repayments at both higher and lower rates gives a fuller picture of what you are committing to over the long term.

These are factors worth exploring with a mortgage professional, who can assess your specific income, savings, and eligibility across lenders and apply them to your situation.

Run the Numbers

Use these tools to understand how the current rate environment affects your situation:

• Borrowing Power Calculator - model your current maximum based on today's rates and your income
• Interest Rate Shock Tester - see what your repayments look like if rates rise by another 0.25% or 0.50%
• Grant Stacker - check which federal and state grants and schemes you may be eligible to access
• Scheme Comparison Tool - compare the First Home Guarantee, Help to Buy, and other options side by side