How Much Can I Borrow After the 2026 RBA Rate Hikes?

Why borrowing power feels tighter in 2026

Borrowing power is not just about your salary. It is about the repayment a lender thinks you can survive after tax, living expenses, existing debts and a stress-tested interest rate.

That last part matters more in 2026. The Reserve Bank lifted the cash rate to 4.35% at its 5 May 2026 meeting, effective 6 May 2026. The RBA's next scheduled decision is 16 June 2026. APRA also says the mortgage serviceability buffer has been set at 3 percentage points above the loan interest rate since 2021.

Put those together and a buyer looking at a 6.35% loan may be assessed at about 9.35%. A buyer looking at a 6.60% loan may be assessed around 9.60%. That does not mean your actual repayments are at 9% today. It means the lender tests whether you could still cope if things got worse.

This guide explains what that means in plain English, with examples you can sanity-check before applying.

How lenders estimate borrowing power

Every lender has its own calculator, but the broad structure is similar:

1. Start with your income.
2. Deduct tax, living expenses and existing commitments.
3. Add repayments on the proposed loan, tested at the assessment rate.
4. Check debt-to-income and other risk rules.
5. Decide whether the loan is inside policy.

Income can include salary, overtime, bonus, rental income, dividends, business income and government payments, but lenders often shade irregular income. Rental income might be counted at 70% to 80%. Bonuses might need a two-year history. Self-employed income can be more complex.

Expenses are not just what you write on the form. Lenders compare declared spending with benchmarks such as household expenditure measures and may use the higher figure. Existing debts also hurt capacity. A credit card limit can reduce borrowing power even if the card balance is zero.

The APRA buffer in real life

APRA's 3 percentage point buffer means lenders assess new borrowers at the higher of their actual loan rate plus 3 percentage points, or any lender floor rate that applies.

Here is what that looks like:

This is why a small rate move can change the answer. A 0.25% increase does not only lift your actual repayment. It also lifts the rate used in the lender's stress test.

What a 0.25% rate rise does to repayments

On a principal and interest loan over 30 years, a 0.25% increase adds roughly:

The precise number depends on loan term, rate and repayment type, but the pattern is simple. The larger the loan, the harder each rate move lands.

Three 0.25% increases in a year can add around $240 to $250 a month on a $500,000 loan and around $480 to $500 a month on a $1 million loan. That is before insurance, rates, strata, utilities and maintenance.

Use the Mortgage Repayment Calculator to test your exact balance and rate.

Worked examples by income

The examples below are deliberately broad. They assume no major debts, no dependants, owner-occupier principal and interest lending, and normal living expenses. Real lender outcomes can be higher or lower.

Why ranges instead of one number? Because two households on the same income can have completely different capacity.

A couple earning $180,000 with no kids, no car loan and closed credit cards can look strong. The same income with two children, a $35,000 car loan, $20,000 of credit card limits and higher living costs can land much lower.

Run your actual situation through the Borrowing Power Calculator rather than relying on a table.

The hidden capacity killers

Some things hurt borrowing power more than buyers expect.

Credit card limits. Lenders assess the limit, not just the balance. A $20,000 unused limit can reduce capacity because the lender assumes you could draw it.

HECS or HELP debt. Compulsory repayments reduce usable income. Even if the balance is falling, the repayment obligation matters.

Car loans and personal loans. These are usually short-term, high monthly commitments. Paying one off can materially improve borrowing power.

Dependants. Children increase assessed living expenses.

Investment property losses. Rental income helps, but lenders shade it and still count the mortgage. A negatively geared property can reduce capacity for the next purchase.

Casual, overtime or bonus income. It may count, but often only with a history and at a reduced percentage.

Can a rate rise affect pre-approval?

Yes. Pre-approval is not a binding promise to lend. It is conditional and time-limited.

If rates move after your pre-approval, the lender may reassess your application using the new rate and buffer. If your original pre-approval was close to your maximum capacity, a later rate rise can reduce the usable amount.

Pre-approval can also change if:

• Your income changes.
• You take on new debt.
• Your expenses increase.
• The property valuation is lower than expected.
• The property type is outside policy.
• Your documents expire.

This is why buyers should not bid to the exact pre-approved amount at auction. Leave room for stamp duty, settlement adjustments, valuation issues and lender policy changes.

How much does borrowing power fall when rates rise?

There is no universal number, but as a rule of thumb, a 0.25% rate rise can trim borrowing power by several thousand to tens of thousands of dollars, depending on income and expenses. A 0.75% increase across a year can be enough to change a buyer from "approved" to "not quite" if they were already near the edge.

The impact is largest for borrowers who:

• Have high existing debts.
• Are borrowing at a high LVR.
• Have little surplus income.
• Are buying in expensive markets.
• Have dependants or variable income.

It is less severe for borrowers with large deposits, low debt, stable income and healthy monthly surplus.

How to protect your borrowing power

Before you apply, focus on the levers that lenders actually count.

Close unused credit cards. Do this before applying, not after. Keep evidence that the limit is closed.

Pay down short-term debts. Car loans and personal loans can weigh heavily because the monthly repayments are high.

Be realistic with expenses. Understating spending rarely helps. Lenders can query bank statements, and an unrealistic budget can slow the application.

Avoid new commitments. New phone plans, BNPL accounts, car finance and personal loans can all affect servicing.

Keep a cash buffer. A lender may approve you with a thin buffer, but life is easier if you do not spend every dollar at settlement.

Check the property type. Some lenders are stricter on small apartments, high-density postcodes, company title, unusual zoning or off-the-plan purchases.

Refresh pre-approval before bidding. If your pre-approval is more than a few weeks old in a moving rate environment, ask the lender or broker to re-check it.

First home buyers using the 5% Deposit Scheme

The 5% Deposit Scheme can remove LMI, but it does not automatically increase serviceability. A buyer with a 5% deposit is still borrowing up to 95% of the property value.

That can work well when the repayment is comfortable. It can become risky when the buyer uses the scheme to stretch to the top of a price cap.

If you are using the scheme, model three numbers:

1. Repayment at your expected lender rate.
2. Repayment at the assessment rate, roughly actual rate plus 3%.
3. Repayment after another 0.25% or 0.50% increase.

If the third number makes the budget uncomfortable, the purchase price is probably too high, even if the lender says yes.

Bottom line

The 2026 borrowing-power story is not complicated. Rates are higher than many buyers expected at the start of the year, APRA's 3% buffer is still in place, and lenders are testing applications against a much tougher repayment than the advertised rate.

That does not mean buyers cannot borrow. It means the smart buyer works backwards from the repayment they can live with, not forwards from the biggest loan a calculator will show.

Check your own position: Borrowing Power Calculator, Mortgage Stress Test, Mortgage Repayment Calculator.

Sources: Reserve Bank of Australia cash rate target and monetary policy decisions; RBA Statement on Monetary Policy May 2026; APRA System Risk Outlook May 2026; APRA macroprudential settings. This article is general information and does not replace credit advice from a licensed professional.