Aspiring buyers may have to save more, or rein in their budget, as cash rate hikes put the squeeze on borrowing power, with new figures from Compare the Market showing maximum loan sizes for average borrowers have shrunk by tens of thousands of dollars.
The comparison website looked at a single borrower with an average wage of $106,652, as well as a couple on average salaries with no dependants.
The single’s borrowing power could be up to $39,700 less than it was just a few months ago, if a third consecutive rate hike is confirmed in May.
The couple would see its borrowing power reduced by $80,400 after three 0.25% rate increases.
Potential impact of rate hikes on borrowing power
| Total household income | Borrowing power at 5% | Borrowing power at 5.25% | Borrowing power at 5.5% | Borrowing power at 5.75% | Difference from 5% to 5.75% |
| $106,652 | $590,100 | $576,300 | $563,100 | $550,400 | -$39,700 |
| $213,304 | $1,195,800 | $1,168,000 | $1,141,200 | $1,115,400 | -$80,400 |
| These calculations are based on a single person and a couple with no dependents, and average salaries (based on ABS average weekly ordinary time earnings for full-time adults, as at November 2025), starting with an interest rate of 5% that is gradually increased to 5.75% following a series of 0.25% rate hikes. The living expenses were calculated via the Household Expenditure Measure (2026 Q2) using the postcode 4000. We assumed the borrowers had no other liabilities such as personal loans, credit card debts or HECS debts. | |||||
Compare the Market’s Economic Director David Koch said the rapid jump in interest rates had once again highlighted why mortgage stress testing matters.
“Not long ago we were enjoying rate cuts and looking forward to more, but the picture has completely changed this year — now it’s looking like all that mortgage relief will be reversed,” Mr Koch said.
“That has implications not just for people already paying a mortgage, but for anyone hoping to take out a new loan.
“Compare the Market’s research shows a typical Aussie couple trying to buy a home has seen their borrowing power potentially slashed by tens of thousands of dollars in just a few short months.
“These limits exist to stop people taking out silly‑sized loans they’ll struggle to service. And as this research shows, it doesn’t take many rate hikes for that maximum loan amount to fall away very quickly.
“That’s why I always encourage people to do their own mortgage stress testing and work out what’s realistically within their budget. You’ve got to ask yourself: what happens if you have kids, lose a job, or face a financial emergency? What loan would you still feel comfortable repaying in those situations?
“The big question right now is simple – could you still afford your repayments if interest rates were to rise another two or three times?
“As a rule of thumb, you really don’t want to be spending much more than a third of your income on repayments. That way, you’ve still got room for everyday bills, unexpected costs, and a bit left over for savings and peace of mind.”
Tighter budgets would likely have a cooling effect on some of the country’s overheated property markets, according to Mr Koch, potentially good news for savvy buyers.
“People may not be able to borrow as much as they once could, but that doesn’t necessarily hurt their chances of buying a home – particularly if they were already in a good position to do so,” he said.
“Everyone is in the same boat, so even if your buying budget has shrunk, it’s likely the buyers you’re competing with are facing the same challenge.
“But buyers shouldn’t be banking on rapid rate cuts to save the day. The safer approach is to plan as if today’s conditions are here for a while.
“Focus on what you can comfortably afford now. A good broker will be able to help you run the numbers and look for a competitive rate that can help keep your repayments manageable too.
“If you’re really in a great position to buy, have a healthy deposit saved, and know what you’re looking for, then higher interest rates needn’t stop you buying a home. Cooler conditions might even work in your favour.”
