The short answer
Four rate hikes in 2026 have changed the maths on home loans. Here's how rate rises affect your approval, and the levers you can pull to protect your borrowing capacity.
Rates are up 1% this year, and lenders have noticed
The RBA lifted the cash rate to 4.60% on 29 September 2026, its fourth rise this year and 100 basis points in total since January. The Board has also said it will raise rates further if it needs to.
Every rise changes the maths on a home loan. Lenders test whether you can afford the repayments at a higher rate than the one you will actually pay, so when rates go up, the amount they will lend you goes down. The RBA itself noted that new housing loans have declined noticeably this year.
If you are buying, refinancing or halfway through an application, here is what a rate rise means for your approval, and what you can do about it.
What happens if rates rise while your loan is being assessed
A rate rise mid-application usually means your loan has to be reworked. Depending on where you are in the process, the lender will reassess your borrowing capacity at the new rate before giving you an answer.
The second impact is time. Lenders work to service level agreements, so you might normally expect an answer in around five business days. When rates move, every application in the queue needs to be reassessed, and processing times blow out.
That delay matters most if you have already signed a contract with a finance clause. If your approval drags past the finance clause deadline, you could be left exposed. If you are buying in the lead-up to an RBA meeting, talk to your broker about building extra time into your finance clause.
Video: Does a Rate Hike Affect Approval? with Gav
Not all debt is treated the same
When rates rise, your other debts take up a bigger share of what you can afford. The good news is that lenders do not treat every debt equally, so some are easier to work around than others.
Debt | How lenders assess it | What it means for you |
|---|---|---|
HECS-HELP | A repayment based on your income, using the HECS thresholds | The more you earn, the higher the repayment the lender factors in |
Credit cards | Around 3% to 3.8% of the card limit each month | A $20,000 limit counts against you even if the balance is zero |
Personal and car loans | The actual repayment, which is high because terms are short and rates are higher | These tend to hit your borrowing capacity hardest |
Credit cards catch a lot of people out. Lenders assess the limit, not what you owe, because you could run the card up to its limit tomorrow. An unused card with a high limit can quietly cost you borrowing power.
How to protect your borrowing capacity
The fix is not always paying down the biggest debt. Sometimes the smartest move costs you nothing at all.
Say you earn $120,000 a year and you are a little short on borrowing capacity. You have two debts on your application:
Debt | Monthly repayment the lender assumes |
|---|---|
HECS-HELP debt | Around $700 |
$20,000 credit card limit (unused) | Around $760 |
Your first instinct might be to use your savings to pay down your HECS. But if you are not using the credit card, cancelling it frees up a similar amount of borrowing capacity and keeps your savings for your deposit.
A few levers worth checking before you apply:
Cancel or reduce unused credit cards. Lenders assess the limit, so a lower limit means a lower assumed repayment.
Clear small personal or car loans if you can. Their short terms make the repayments heavy.
Weigh up your HECS. Paying it off can help, but compare the cost against keeping that cash for your deposit.
Get your numbers run before you sign anything. A broker can show you which change makes the biggest difference.
Video: What Can You Do to Protect Yourself From Interest Rate Increases?
What to do now
With the RBA leaving the door open to more rises, assume your borrowing capacity could shrink again and plan for it.
Get pre-approved early so you know where you stand before you make an offer.
Allow extra time in your finance clause, especially around RBA meetings.
Tidy up your debts before you apply, starting with unused credit card limits.
Recheck your numbers after every rate move, even if you are already pre-approved.
Not sure how the latest rise affects you? Our mortgage brokers can run your numbers, show you which levers make the biggest difference, and keep your application moving. Let's chat.
This article is general information only and does not consider your personal circumstances. Speak to a licensed broker before making any financial decisions.
Gav is the person you want in your corner when it comes to property finance. After years in banking and motor trade finance, he joined Elephant early and never looked back. He's passionate about combining property and finance to help clients achieve their goals through tailored financial structuring, and he's very serious about snacks at meetings.
