Most of the rate-rise talk is about repayments. If you’re buying this spring, there’s a second effect that matters just as much: a higher rate means a smaller maximum loan.
Why a small rise has a real effect
Lenders don’t test whether you can afford today’s rate. APRA requires them to test you at your rate plus a 3% buffer. So a 6.5% loan is assessed as if it were 9.5%. When the actual rate goes up 0.25%, the assessment rate goes up too, and the same income supports a smaller loan.
| Borrowing power today | After one rise (+0.25%) | After two rises (+0.50%) |
|---|---|---|
| $600,000 | about $13,000 less | about $26,000 less |
| $800,000 | about $17,000 less | about $34,000 less |
| $1,000,000 | about $22,000 less | about $43,000 less |
That’s roughly 2% less per 0.25% rise. Exact figures vary by lender, because each uses its own expense and income rules.
Already pre-approved?
A pre-approval is assessed at the rate on the day. If rates rise before formal approval, the lender reassesses at the new rate, and a borrower right at their limit can come in lower. If you’re bidding at the top of your range, have your numbers re-checked first. How pre-approval works.
Five ways to claw it back
- Close or cut credit card limits. Lenders count the full limit as debt, even if the balance is zero. Cutting a $15,000 limit you don’t use can add more borrowing power than a rate rise takes away.
- Clear small debts. A car loan or buy-now-pay-later account can weigh more on serviceability than its balance suggests.
- Make sure all your income counts. Overtime, bonuses, allowances and rental income are treated differently by different lenders. If you’ve just lodged your tax return, your latest figures may help.
- Choose the lender, not just the rate. Borrowing power for the same person can vary by tens of thousands between lenders because of policy, not price.
- Look at the deposit side. The Home Guarantee Scheme or a family guarantee doesn’t change how much you can service, but it can change what you can buy with it.
The silver lining
Rising rates squeeze every buyer, not just you. With prices already softening, fewer buyers are stretching to the top of the market, and that can mean more room to negotiate for the buyer whose finance is ready.
Common questions
How much does a 0.25% rate rise reduce borrowing power?
Roughly 2%. Because lenders assess loans at the actual rate plus a 3% buffer, a 0.25% rise cuts borrowing power by about $13,000 on a $600,000 limit, $17,000 on $800,000 and $22,000 on $1 million. Exact figures vary by lender.
What is the 3% serviceability buffer?
APRA requires banks to check that borrowers could still repay if their rate were 3 percentage points higher. A loan at 6.5% is assessed as if it were 9.5%. APRA has kept the buffer at 3% through 2026.
Does a rate rise affect my pre-approval?
It can. Pre-approval is conditional, and the lender reassesses at formal approval using the rate at that time. If you are close to your limit, a rise between pre-approval and formal approval can reduce the amount.
How can I increase my borrowing power?
Reduce or close credit card limits, pay off small debts, make sure all eligible income is counted, and compare lenders, because credit policy varies more than rates do.
Sources: APRA. Estimates assume a 30-year principal-and-interest loan assessed at the actual rate plus 3%, with income and expenses unchanged. General information only, not financial or credit advice. Current at 24 September 2026.
