Major banks’ May forecasts raise risk of a larger borrowing capacity squeeze
The maximum amount Australians can borrow for a home loan is expected to fall within the next fortnight after the Reserve Bank of Australia (RBA) lifted the cash rate by 0.25 percentage points on Tuesday.
Analysis by Canstar.com.au indicates that a borrower on the average full-time wage of $106,950 could see borrowing capacity reduced by about $12,000 as lenders continue to announce increases to variable and fixed mortgage rates in response to the move.
The estimate assumes an owner-occupier application with no other debts, no dependants and minimum expenses. Canstar noted that borrowing capacity figures are indicative and can differ between lenders.
If the cash rate rises again in May, as major bank economists are forecasting, Canstar estimates the same borrower’s borrowing capacity could be lower by about $37,000 in total.
| Estimated decrease in borrowing capacity as a result of RBA hikes | |||
|---|---|---|---|
| Borrower | Hike in March | Cumulative impact across March + Feb | Cumulative impact: March + Feb + May |
| Individual (avg. wage) | -$12,000 | -$25,000 | -$37,000 |
| Couple (2 x avg. wage) | -$24,000 | -$49,000 | -$73,000 |
| Source: Canstar.com.au. Based on an owner-occupier taking out a 30-year loan at the average RBA rate. | |||
Commonwealth Bank, Westpac, NAB and ANZ have each signalled they still anticipate another 0.25 percentage point increase in May, which would take the cash rate to 4.35%, reversing the effect of the three rate cuts delivered in 2025.
“If inflation continues to soar and the RBA is forced to hike again as soon as May, as the banks are forecasting, buyers could be staring down an almost $40,000 hit to their budgets in just four months,” said Sally Tindall (pictured right), data insights director at Canstar.com.au.
“Right now, home buyers are facing the second highest cash rate setting this country has seen in the last 14 years, at the same time property prices in key areas continue to march north, albeit at a slower pace. This makes what was already a tricky equation a near-impossible puzzle to solve for many prospective home owners.
“While borrowers can’t control the cash rate, they do have some levers they can pull. Knocking off existing debts, boosting your income and securing a sharper rate can make a difference to whether the bank green-lights your loan application or not.
“That said, pushing the envelope on how much debt you take on should not be done lightly. Banks have these checks and balances in place for a reason. It’s important you run these tests too so you know exactly how much your mortgage repayments would be at an interest rate that’s three percentage points higher. An unlikely scenario right now, but a mortgage can hang around for up to three decades and a lot can happen during this time.”
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