Three rate rises this year have already slashed borrowing capacity for a dual-income couple earning the average wage by $70,700. A fourth increase would push that to $92,500. For a single buyer on the average wage, the hit is $35,400 so far, climbing to $46,300 after another move.
Meanwhile, Sydney’s median house price is forecast to fall another $67,284 by December, taking the full-year drop to around $162,000. Melbourne could lose $89,600 over the same period. Adelaide, Brisbane and Perth are projected to shed between $17,000 and $31,000 from current levels but still finish 2026 higher than where they started.
The catch: if your borrowing capacity contracts by more than prices fall, you’re worse off even as the market weakens. That’s the position facing most new entrants right now.
The mismatch between prices and purchasing power
The RBA’s next decision sits one day away. Another increase would tighten serviceability buffers further, pushing more buyers into smaller properties, units instead of houses, or suburbs further from work and schools.
A couple who could borrow enough for a three-bedroom house in their target area six months ago might now only qualify for a two-bedroom townhouse in the same postcode. Or they stay in the house category but move 15 kilometres further out.
Some buyers are delaying purchases, banking on prices falling enough to offset the capacity squeeze. The trade-off: higher rates can erase the benefit of a larger deposit faster than prices drop. Buyers returning to brokers after six months of saving are discovering the extra cash in their offset account has been nullified by rate moves in the interim.
The practical take
- Borrowing capacity for an average dual-income couple has dropped $70,700 this year; another rate rise pushes it to $92,500
- Sydney’s median house price is forecast to fall $162,000 over 2026, but that’s barely more than the borrowing hit
- Brisbane, Perth and Adelaide prices are still up year-to-date despite recent falls
- Single buyers on the average wage face a $35,400 capacity reduction so far, rising to $46,300 after one more hike
Who gets squeezed and who doesn’t
Buyers split into two groups. Those with stronger incomes and enough serviceability buffer can still borrow what they need and take advantage of weaker prices. They’re negotiating harder, securing discounts, and locking in properties that would have been out of reach 12 months ago.
The other group, first-time buyers, single-income households, anyone near the serviceability threshold, are being priced out even as values fall. A $70,000 drop in borrowing capacity means giving up a bedroom, outdoor space, or proximity to work. The property might be cheaper on paper, but if you can’t get the loan, the price cut is irrelevant.
Recent low-deposit buyers face a different risk. If prices fall as forecast, some will slip into negative equity, where the outstanding loan exceeds the property’s value. That only matters if they need to sell. Staying put means riding out the cycle, but it removes flexibility to move, upgrade, or refinance without bringing cash to settlement.
What could shift the dynamic
Three variables determine whether this gap narrows or widens over the next six months: the RBA’s next move, wage growth, and how quickly prices adjust to tighter credit conditions.
If the RBA holds, borrowing capacity stabilises. If wages rise faster than rates increase, some ground gets clawed back. If prices fall faster than capacity contracts, the math starts working in buyers’ favour again.
Base case: one more rate rise, modest wage growth, and prices continuing to drift lower in Sydney and Melbourne while Brisbane, Perth and Adelaide plateau. That scenario keeps the affordability squeeze in place through year-end.
Upside for buyers: the RBA pauses, wages tick up, and prices fall another 5-10% in the major capitals. Capacity recovers slightly while values drop more, creating a genuine affordability improvement.
Downside: another two rate rises, stagnant wage growth, and prices stabilise. Borrowing capacity contracts further, pushing more buyers out of the market entirely or into properties that don’t meet their needs.
The serviceability threshold and why it moves faster than prices
Lenders assess borrowing capacity using a serviceability buffer, typically 3 percentage points above the actual loan rate. When the cash rate rises by 0.25%, the test rate used in serviceability calculations rises by the same amount, compounding the impact.
A couple borrowing $800,000 at 6.5% pays around $5,070 per month in interest alone. The serviceability test assumes they could still afford repayments if rates hit 9.5%, meaning monthly interest of around $6,333. Every rate rise shrinks the pool of borrowers who can pass that test, even if they could comfortably afford the actual repayment.
Prices, by contrast, adjust more slowly. Vendors resist cuts, buyers wait for better conditions, and transaction volumes drop rather than prices falling sharply. The lag means borrowing capacity contracts in real time while prices drift lower over quarters, not weeks.
That’s why a $70,000 borrowing hit can outpace a $67,000 price fall. The borrowing calculation responds instantly to rate changes. The price adjustment takes six to twelve months to fully play out.
Next steps if you’re near the serviceability line
If you’re close to the borrowing limit, pressure-test your budget against one more rate rise. Run the numbers assuming another 0.25% increase and see what that does to your maximum loan amount. If it pushes you below what you need, decide now whether to adjust your property criteria or wait.
Waiting only makes sense if you expect prices to fall faster than your borrowing capacity contracts. For most buyers, that’s a losing bet unless the RBA pivots to cuts within the next six months, a scenario that’s possible but not the base case.
If you bought in the past 12 months with a small deposit and prices have fallen, don’t panic unless you need to sell. Negative equity is a paper loss, not a realised one. Focus on making repayments, building equity through principal reduction, and riding out the cycle. Refinancing might be off the table until values recover, but that’s manageable if your loan structure and rate are still workable.
For first-time buyers still saving, consider whether another six months of deposit-building will offset another rate rise. If capacity is falling faster than you’re accumulating savings, the window might be closing rather than opening. Run the scenarios with a broker before committing to a longer wait.
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General info, not financial advice.
