What the Rate Rise Means for Your Borrowing Power

It's Tuesday arvo. You're halfway through scrolling listings in Tarneit when the news alert lands on your phone. Rates are up again.

Your stomach drops a little. You've been saving for two years, you finally had a number in your head, and now you're wondering if that number still exists.

Here's what a rate rise actually does to your borrowing power, and what it leaves alone.

What happened on 29 September

The Reserve Bank lifted the cash rate by a quarter of a percentage point. It's the fourth rise this year, and the Board said it will lift again if it thinks it needs to.

The cash rate isn't your home loan rate. Each lender decides whether to pass a change on, how much, and when. Most variable rates tend to follow, but that's a lender decision, not an automatic one.

So the real question isn't the headline. It's what your lender does next.

Why your borrowing number moves, not just your repayment

Most people think a rate rise only makes repayments bigger. It does. But it also shrinks what a lender will let you borrow in the first place.

When a lender assesses you, it doesn't test you at the rate you'll actually pay. APRA expects lenders to test whether you could still afford the loan at a rate at least 3 percentage points higher.

Here's the knock on effect:

• The test rate rises with the real rate. When a lender lifts its rate, the assessment rate climbs by the same amount.
• A higher test rate means a smaller loan. Your income and expenses haven't changed, but the same surplus now supports less debt.
• Nothing in your file changed. That's why the number can move even when your pay and your spending are exactly where they were last month.

If you ran your borrowing power in winter, it's worth running it again once your lender's new rates are live. If you'd like a second set of eyes on where it lands, book a chat.

What about a pre-approval you already have

A pre-approval is conditional. It was assessed on the rates and policy in place at the time.

Some lenders will honour it as issued until it expires. Others will reassess when you go to formal approval, and the rate rise can mean a lower figure. It depends on the lender and how close you are to the edge of your limit.

If you're bidding at auction on a pre-approval from a few months ago, it's worth knowing which kind you've got before Saturday, not after.

What the rate rise didn't touch

Plenty of the things that matter most for a first home buyer in Victoria haven't moved at all.

• The 5% deposit guarantee. The First Home Guarantee still lets eligible buyers purchase with a 5% deposit and no lenders mortgage insurance, with a $950,000 price cap in Melbourne.
• Victorian stamp duty. First home buyers still pay no duty up to $600,000, with a sliding concession up to $750,000.
• Your savings. Every dollar you've put away is still there.

The RBA's own statement also noted that housing prices have fallen in most capital cities and new housing loans have declined noticeably. Softer conditions can mean fewer bidders and more room to negotiate. They can also mean a lower borrowing number. Both things are true at once, and how they balance out is different for every buyer.

Re-run the number, then plan the next 12 weeks

A rate rise is a good reason to update your numbers. It isn't, on its own, a reason to buy or a reason to stop.

Twelve weeks is roughly the runway to sign on a place before Christmas. That's enough time to re-check your borrowing power, confirm where your pre-approval stands, and look at homes in a range that still fits.

We've helped over 100 first home buyers into the market, and we're rated 10/10 on Reviewr by over 100 customers. If you'd like to work out where your number sits now, book a chat.

This is general information only, not personal credit advice. Your own situation will change how any of this applies to you.

Let's get you into a home.

Figures verified 1 October 2026 against the RBA Monetary Policy Board statement of 29 September 2026, APRA macroprudential settings, State Revenue Office Victoria duty thresholds and current First Home Guarantee guides.