House Prices Fell. But an Average-Income Couple Has Lost Nearly $95,000 in Borrowing Power.

Falling property prices should make buying a home easier.

At least, that is how the equation appears at first.

If a house becomes cheaper, surely a buyer needs a smaller mortgage.

But Australia's latest interest-rate cycle shows why housing affordability is much more complicated than the price displayed on the listing.

Canstar estimates that a person earning an average full-time wage of $108,650 has lost approximately $47,400 in maximum borrowing capacity during 2026.

For a couple each earning that amount, the estimated reduction is approximately $94,700.

That is a 9% reduction in borrowing power. Canstar

And that estimate is particularly relevant today.

On 29 September, the Reserve Bank of Australia increased the cash rate by another 25 basis points, from 4.35% to 4.60%. It was the fourth increase during 2026 and took the cash rate to its highest level since late 2011. ABC News

So the borrowing-capacity reduction Canstar modelled ahead of today's decision is no longer merely a hypothetical September scenario.

For prospective buyers, especially first-home buyers, this creates a frustrating reality:

The home may be getting cheaper.

But the amount the bank is prepared to lend you may be falling even faster.

Another Rate Hike Has Cut Borrowing Power Again

Canstar estimated that today's 0.25 percentage-point increase alone could reduce the maximum borrowing capacity of someone earning $108,650 by approximately $11,200.

For a couple with two average full-time incomes, the additional reduction is approximately $22,400.

Across all four increases during 2026, Canstar estimates the cumulative change as follows: Canstar

These are modelling estimates, not universal borrowing limits.

A real lender assessment can produce a very different result depending on income, expenses, dependants, existing debts, credit limits, deposit, property type and lender policy.

But the direction is clear.

Higher mortgage rates reduce how much income can safely support a loan.

Why Does a Higher Rate Reduce Borrowing Capacity?

A lender does not simply ask whether you can afford today's advertised repayment.

It needs to consider whether you could continue servicing the mortgage if financial conditions became more difficult.

Australian Prudential Regulation Authority requirements currently maintain a minimum mortgage serviceability buffer of 3 percentage points above the relevant loan interest rate for APRA-regulated banks. APRA

That buffer exists to provide protection against future rate increases and unexpected changes to household income or expenses.

When actual home-loan rates rise, the rate used in lender serviceability assessments generally rises with them.

That means the same household income supports a smaller maximum mortgage.

Nothing else about the borrower needs to change.

The salary can remain identical.

The deposit can remain identical.

The household can have exactly the same expenses.

Yet its maximum borrowing capacity can fall simply because the interest-rate environment has changed.

The $95,000 Figure Has Important Assumptions

Canstar's modelling is useful, but buyers should understand what sits behind it.

Its estimate assumes an owner-occupier taking out a 30-year mortgage at the average new-customer variable rate, with no dependants or other debts and relatively low household expenses.

Canstar assumes annual expenses of $24,000 for an individual and $48,000 for a couple and incorporates the 3 percentage-point serviceability buffer. Canstar

A real family with children, a car loan, HELP debt, credit cards or higher living expenses could have materially different borrowing capacity.

Likewise, some lenders may assess particular sources of income more favourably than others.

That is why "$95,000" should be treated as an illustration of the scale of the change rather than a number that applies to every Australian couple.

Falling House Prices Do Not Automatically Improve Affordability

This is the critical point for buyers.

Property affordability has at least two sides.

What the property costs.

And what you can borrow to purchase it.

If property prices decline by 5%, but your borrowing capacity declines by 9%, you may actually be further away from purchasing the home you want.

The asking price went down.

Your financing ceiling went down even more.

That is why headlines about falling property prices can sometimes give prospective buyers false confidence.

What matters is not merely:

"How much did this suburb fall?"

It is:

"How does the new price compare with what I can now borrow?"

Sydney Could Be an Exception for Some Buyers

The equation will not be identical everywhere.

Canstar's latest analysis uses Westpac housing forecasts showing Sydney property prices potentially declining around 10% across 2026.

Canstar noted that if a fall of that magnitude occurs, some Sydney buyers could see property prices decline by more than their borrowing capacity. Canstar

That could improve relative affordability for some buyers.

But other markets have behaved very differently.

Brisbane, Adelaide and Perth entered the current slowdown after stronger price growth, meaning a buyer's borrowing capacity could deteriorate significantly without receiving an equivalent discount in the property market. Canstar

So there is no single national affordability story.

The suburb matters.

The property type matters.

And the borrower's personal lending position matters.

Australia's Average Wage Has Risen, But Rates Have Overpowered Part of the Benefit

The latest ABS Average Weekly Earnings release shows average full-time adult ordinary-time earnings at $2,083.70 per week in May 2026, 3.7% higher than a year earlier. Australian Bureau of Statistics

Normally, higher wages can increase borrowing capacity.

More income means more money available to service mortgage repayments.

But during a rapid rate-tightening cycle, the serviceability impact from higher mortgage rates can overwhelm some of that improvement.

Canstar's calculations also deliberately exclude future wage growth when estimating the year-to-date reduction.

That is useful because it isolates the impact coming from interest rates.

For buyers, however, actual income increases, promotions or new employment can change the result.

First-Home Buyers Are Being Squeezed From Both Directions

This is particularly relevant to Australians trying to enter the market for the first time.

They need to accumulate a deposit while simultaneously qualifying for sufficient finance.

Higher rates make the second challenge harder.

The latest ABS lending data already shows weakening activity.

The number of new dwelling loan commitments fell 5.4% in the June quarter.

Owner-occupier loans fell 3.3%.

And first-home-buyer owner-occupier commitments declined 2.9% during the quarter. Australian Bureau of Statistics

Those numbers were recorded before today's fourth 2026 cash-rate increase.

So the financing environment has since become tighter again.

A Bigger Deposit Does Not Automatically Restore the Lost Borrowing Power

It is tempting to think:

"If the bank will not lend me as much, I'll simply save a larger deposit."

That can help.

A larger deposit reduces LVR and can improve lender choice and pricing.

But the borrower still has to satisfy serviceability.

Imagine a buyer has a very strong deposit but insufficient income to service the remaining mortgage under a lender's assessment.

The deposit does not automatically solve the serviceability problem.

This distinction is important.

Deposit determines how much equity you bring to the transaction.

Serviceability determines whether the lender believes you can manage the debt.

Both matter.

Existing Debts Can Become Much More Important in a Higher-Rate Environment

When borrowing capacity is already under pressure, relatively small financial commitments can become more significant.

Credit-card limits, car finance, personal loans, buy-now-pay-later commitments and other debts can all influence lender assessments.

Importantly, lenders may consider the available credit limit on a credit card rather than simply the amount currently outstanding.

That means someone preparing for a mortgage application should understand exactly what liabilities appear on their financial profile.

Closing an unused credit facility may sometimes improve an application.

But it should be considered in the context of the borrower's overall finances and lender requirements.

The Maximum the Bank Will Lend Is Not Necessarily What You Should Borrow

There is another distinction first-home buyers should make.

Borrowing capacity is not the same thing as comfortable affordability.

A lender may approve a particular mortgage amount after applying its credit rules.

That does not mean the household necessarily wants repayments at that level.

Future expenses can change.

Children may arrive.

One partner may work fewer hours.

Insurance can rise.

Council rates can increase.

Repairs happen.

Interest rates can change again.

Buyers therefore need two numbers:

what a lender may approve,

and what they personally feel comfortable repaying.

Those numbers do not have to be the same.

Today's RBA Increase Has Taken the Cash Rate to 4.60%

The Reserve Bank has now delivered four rate increases during 2026.

Today's 25-basis-point increase lifted the cash-rate target to 4.60%.

The decision was unanimous. ABC News

The RBA said inflation remains too high and that additional tightening was warranted to support inflation's return to target.

It also left open the possibility of further increases if required. ABC News

That possibility matters for prospective buyers because borrowing capacity could decline further if another increase occurs.

What if There Is Another Rate Increase?

Canstar has modelled that scenario too.

If Australia experiences a fifth 25-basis-point increase during 2026, Canstar estimates cumulative borrowing-capacity losses could reach approximately:

$58,100 for an individual earning the average wage.

$116,200 for a couple each earning the average wage.

That would represent an estimated 11% decline from the beginning of the year under Canstar's assumptions. Canstar

That is a scenario, not a certainty.

ABC reported today that most analysts it cited expect today's increase to be the final hike for the year, while some economists still see the possibility of additional tightening. ABC News

For a buyer, predicting which forecast is correct is less useful than understanding whether their budget remains viable under another increase.

Every Rate Rise Can Change the Type of Property You Can Buy

A $10,000 or $20,000 reduction in borrowing power might seem relatively small compared with Australian property prices.

But property searches are often determined at the margin.

A buyer might be able to bid to $850,000 but not $900,000.

That difference can determine:

which suburbs are accessible,

whether a detached house is possible,

whether the buyer needs to consider a townhouse or apartment,

and how far from employment or family they need to look.

When a couple loses nearly $95,000 of borrowing capacity in less than a year, the practical impact can therefore be substantial.

It can change the entire property search.

Pre-Approvals Need to Be Rechecked

This environment also creates an issue for people who obtained mortgage pre-approval months ago.

A pre-approval issued before several rate increases should not automatically be treated as evidence of what the lender will approve today.

Lenders can reassess applications when:

interest rates change,

the borrower's circumstances change,

the approval expires,

or the final property is selected.

A buyer bidding at auction based on an outdated borrowing estimate could therefore create unnecessary risk.

Before making an unconditional offer, confirm that the finance position remains current.

Falling Property Prices Can Help Your Deposit Faster Than Your Borrowing Power

There is one positive side to declining prices.

A cheaper property usually requires a smaller dollar deposit for the same LVR.

For someone with cash savings already accumulated, that can improve the deposit side of the affordability equation.

But again, serviceability remains separate.

A buyer might finally have enough for the deposit but no longer have enough borrowing capacity to finance the balance.

That is why prospective buyers should stop viewing "saving the deposit" as the only hurdle.

The complete equation is:

deposit + borrowing capacity + purchase costs + sustainable repayments.

The Serviceability Buffer Is Doing What It Was Designed to Do

A shrinking borrowing limit can feel frustrating.

But the policy has a purpose.

APRA says the 3 percentage-point serviceability buffer is designed to ensure borrowers have enough financial capacity to withstand future interest-rate increases and unexpected changes to income or expenses. APRA

That becomes particularly relevant during a year like 2026.

Someone who borrowed to their absolute maximum before four consecutive increases may now be paying materially more each month.

The buffer is intended to reduce the likelihood that borrowers become immediately overstretched when conditions change.

Buyers Should Compare Lender Policy, Not Just Interest Rates

Borrowing capacity can also vary between lenders.

Banks may treat:

overtime,

bonuses,

commissions,

self-employed income,

rental income,

existing liabilities,

living expenses,

and other income sources differently.

That means someone declined for a particular amount by one lender may receive a different assessment elsewhere.

This does not mean borrowers should attempt to maximise debt at all costs.

But it does mean lender policy matters.

A mortgage broker can compare not only interest rates but also how different lenders assess the borrower's actual circumstances.

Cheaper Homes Can Still Be Harder to Buy

This is perhaps the clearest lesson from today's numbers.

Australia has experienced falling prices in several major property markets.

At the same time, higher rates have reduced maximum borrowing capacity.

Those two forces operate simultaneously.

A buyer cannot assume:

"Prices are falling, therefore affordability is improving."

The right comparison is:

How much has the property I want fallen?

Versus:

How much has my borrowing power changed?

Canstar's estimate of a nearly $95,000 reduction for a couple on two average incomes demonstrates why that comparison matters. Canstar

Today's Rate Rise Makes This More Important, Not Less

The original Canstar analysis was published ahead of the September RBA meeting.

We now know the outcome.

The RBA increased the cash rate to 4.60% today. ABC News

For buyers, today's decision should trigger a fresh assessment of their numbers.

Not panic.

Not abandoning the property search.

And not assuming every lender will produce exactly the same answer.

But recalculating.

A budget that worked in January may not work in September.

And a pre-approval from several months ago may no longer represent today's maximum.

House Prices Fell. But an Average-Income Couple Has Lost Nearly $95,000 in Borrowing Power.

Australia's housing market currently presents first-home buyers with an unusual equation.

Prices are declining in some locations.

But finance has become substantially harder to obtain.

Canstar estimates today's fourth 2026 interest-rate increase takes the cumulative borrowing-capacity reduction for an average-income individual to approximately $47,400.

For an average-income couple, the reduction reaches approximately $94,700. Canstar

That is why buyers should not judge affordability by property prices alone.

The mortgage matters just as much.

Sometimes more.

Thinking About Buying Your First Home?

At Loan & Own Mortgages, we help first-home buyers understand what they can realistically borrow in today's lending environment.

That can include reviewing your deposit, income, expenses, existing debts, borrowing capacity, lender options, LVR and likely repayments before you start making offers.

If you had your borrowing capacity calculated earlier in 2026, today's rate environment may have changed the answer.

Getting an updated assessment can help you understand your real property budget before committing to a purchase.

Speak with Loan & Own Mortgages to review your home-buying position.

Data sources

Canstar, 28 September 2026: Canstar estimated that a fourth 2026 rate increase would reduce maximum borrowing capacity by approximately $47,400 for an individual on an average full-time wage and $94,700 for a couple earning two average wages, a decline of around 9%. Its model assumes a 30-year owner-occupier mortgage, minimal expenses, no debts or dependants and a 3 percentage-point serviceability buffer. Canstar

Reserve Bank of Australia / ABC News, 29 September 2026: The RBA increased the cash-rate target by 25 basis points to 4.60%, its fourth increase during 2026 and the highest cash rate since late 2011. ABC News

Australian Bureau of Statistics, May 2026: Average weekly ordinary-time earnings for full-time adults were $2,083.70, up 3.7% over the year. Australian Bureau of Statistics

APRA, May 2026: The mortgage serviceability buffer remains at 3 percentage points above the loan interest rate for APRA-regulated lenders. APRA

Australian Bureau of Statistics, June quarter 2026: New dwelling loan commitments fell 5.4% during the quarter, owner-occupier commitments fell 3.3%, and first-home-buyer owner-occupier commitments fell 2.9%. Australian Bureau of Statistics

ABC News, 29 September 2026: Each 25-basis-point increase adds approximately $91 per month to repayments on an illustrative $600,000 variable mortgage with 25 years remaining, while Canstar estimates the cumulative four increases during 2026 add around $364 per month under those assumptions. ABC News

This article provides general information only and does not constitute personal financial, credit, investment, tax or legal advice. Borrowing capacity differs materially between lenders and depends on income, expenses, debts, dependants, loan structure, property characteristics and other individual circumstances.