A widely expected fourth RBA rate rise on Tuesday could strip another $11,200 from the borrowing capacity of an average-income buyer, as falling property prices and tighter lending budgets reshape purchasing power across Australia.
Australia’s real estate industry is bracing for another reduction in buyer borrowing capacity, with all four major banks expecting the Reserve Bank to lift the cash rate by 25 basis points on Tuesday.
The increase would take the cash rate from 4.35 per cent to 4.60 per cent and mark the fourth increase of 2026, following rises in February, March and May.
While the decision remains with the RBA’s Monetary Policy Board, expectations of an increase are widespread, with Finder’s latest RBA Cash Rate Survey finding 37 of 41 economists and experts, or 90 per cent, expect a 25 basis point rise on Tuesday.
For the real estate industry, another rise would not only increase mortgage repayments but further restrict the amount prospective buyers can borrow.
Canstar analysis estimates an individual earning $108,650 a year could see their maximum borrowing capacity fall by another $11,200 following a 25 basis point increase.
That would take the estimated reduction in borrowing capacity since the beginning of 2026 to $47,400, or 9 per cent.
For a couple each earning the same amount, Canstar estimates Tuesday’s increase would reduce their combined borrowing capacity by another $22,400, taking the cumulative reduction this year to $94,700, also 9 per cent.
The estimates are based on an owner-occupier taking out a 30-year loan at the average rate, with minimal expenses, no other debts and no dependants. Actual borrowing capacity varies between lenders and borrowers.
Canstar data insights director Sally Tindall said another increase would further reduce the budgets buyers are taking into the market.
“Another rate hike on Tuesday would mean yet another haircut to the maximum amount someone can borrow from the bank,” she said.
“For a person on the average wage, that’s a drop of $11,200 to their maximum home buying budget. This might not sound like much in the context of buying a property, but they’re already had three trims to their budget this year. A fourth hike would tally up to a pretty hefty cut of $47,400.”
Could another hike follow?
The major banks are united on what they expect on Tuesday, but not on what happens next.
CBA, Westpac and NAB currently have a September increase taking the cash rate to 4.60 per cent as their base case, while ANZ is forecasting another 25 basis point rise in November, which would take the cash rate to 4.85 per cent by the end of the year.
Under that scenario, Canstar estimates an individual on the wage used in its modelling would lose another $10,700 in borrowing capacity after the November increase, taking the cumulative reduction across 2026 to $58,100, or 11 per cent.
For a couple each earning the same amount, the cumulative reduction would reach $116,200.
“If rates go up five times this year, as ANZ is forecasting, an average-wage borrower could see more than $58,000 wiped from their borrowing capacity,” Ms Tindall said.
“That’s not a rounding error – it could be the difference between being able to bid on a property and having to sit on the sidelines.”
The possibility of further tightening is not confined to ANZ’s economists.
Finder found 19 of the 40 experts who answered its year-end question, or 48 per cent, expect at least one further increase after September and before the end of 2026.
Falling prices change the equation
For agents and buyers, however, borrowing capacity is only half the equation.
Property values have also been falling, particularly in Sydney and Melbourne, raising the prospect that in some markets the reduction in property prices could partly or even fully offset the decline in what some buyers can borrow.
Westpac’s latest forecasts point to further weakness in the housing market, with Sydney expected to record the largest decline.
The Canstar analysis, using Westpac’s calendar-year forecasts alongside Cotality data to August 31, shows Sydney dwelling values were already down 6.7 per cent in 2026, against Westpac’s forecast for a 10 per cent fall over the full year.
Melbourne was down 6.3 per cent to the end of August, against a forecast 8 per cent decline for 2026.
The picture remains markedly different elsewhere.
Brisbane values were 2.8 per cent higher for the year to August 31, Adelaide was up 3.1 per cent, Perth 4.1 per cent and Hobart 4.2 per cent, according to the Cotality figures contained in the Canstar analysis.
Westpac’s calendar-year forecasts cited by Canstar have Brisbane ending 2026 up 2 per cent, Adelaide and Perth up 3 per cent and Hobart up 4 per cent.
“The interesting twist is that while higher rates are shrinking borrowing capacity, property prices, in some cases, could fall further,” Ms Tindall said.
“If Westpac’s forecast comes to pass and prices in Sydney drop by a total of 10 per cent this year, then for some borrowers, they might find the cut to their home buying budget is less than the drop in prices in their area.
“But, as is always the case, it will depend on the local market. While Westpac is essentially expecting property prices to drop in every capital city from now through to the end of the year, there’s a big difference between say Sydney, which has been on the slide for most of 2026, and Perth and Brisbane, which are only just starting to slide.”
There are also signs buyers are already changing their behaviour in response to the affordability squeeze.
New Cotality research found 75 per cent of Australian buyers surveyed had already cut, or planned to cut, lifestyle spending to afford a home. Another 57 per cent were open to buying a smaller property, while 63 per cent would consider taking out a smaller mortgage.
Cotality Chief Commercial Officer Lisa Jennings said affordability pressures were changing the compromises buyers were prepared to make.
“Australian and New Zealand buyers are making some of the biggest compromises of any market surveyed. They’re cutting spending, buying smaller, and restructuring their mortgages just to get into the market,” she said.
“Affordability pressures are having a fundamental impact on what buyers are willing to compromise on to get into their own home.”
“The dream of homeownership hasn’t dimmed, but getting there now requires more compromise and careful financial planning than it has in previous cycles,” Ms Jennings said.
The Cotality Consumer Sentiment Report is based on a second-quarter 2026 survey of buyers in Australia, New Zealand, the US, Canada and the UK, supplemented by Cotality’s proprietary datasets.
Existing mortgage holders would also face another increase in repayments if the RBA moves on Tuesday.
Finder estimates a borrower with an average home loan of $736,259 would be paying about $427 more a month than at the beginning of 2026 if the cash rate reaches 4.60 per cent.
If there were another increase before the end of the year, Finder estimates the cumulative increase compared with January would reach $542 a month.
For prospective buyers, Ms Tindall said the possibility of further increases should be factored into purchasing decisions rather than relying solely on the maximum amount a lender is prepared to approve.
“Yes, the bank stress tests your finances at the back end when you go to apply for a mortgage, but it’s worth running the numbers yourself to understand what they look like.
“While there’s no suggestion rates will rise by a further 3 percentage points in the near future, that’s what the banks will be stress testing your budget at because over a 30 year term, anything is possible.”