iscover 
Following the Reserve Bank of Australia’s decision to lift the cash rate for a fourth time this year, taking it to 4.6 per cent, serviceability has been in the spotlight.
Cotality found that, based on a median household income, the cumulative impact of the four rate hikes since February has reduced borrowing capacity by almost $90,000, equivalent to a 9 per cent decline in purchasing power.
The hit to borrowing capacity comes as housing affordability reaches record lows. A median-income household earning around $125,000 can afford just 12 per cent of homes sold in FY2025–26, according to REA Group’s Housing Affordability Index.
At the same time, house prices and mortgage demand have both slumped.
Credit reporting bureau Equifax found that overall mortgage demand fell 14.1 per cent year on year in August 2026, while Cotality found that national median home values fell 3.1 per cent over the three months to August.
Serviceability in the spotlight
While house prices have fallen, particularly at the higher end of the market, brokers have told Broker Daily that the deterioration in serviceability has largely eclipsed any potential gains from lower prices.
“A small movement in rates can make a pretty big difference to what someone can actually spend, especially when they are already close to their maximum,” said Sarah Smelt, director of Finance Society.
The pressure has been particularly pronounced for first home buyers, with any benefit from falling prices potentially offset by a reduction in their borrowing capacity.
Speaking on Broker Daily Uncut, Finni principal Eva Loisance said she was already seeing the impact on borrower behaviour.
“The property prices haven’t come down as much as what your serviceability has, so you’re just getting hit from every side,” she said.
“People are definitely feeling the pinch on everything. They’re not panicking but they are feeling uneasy, often working backwards and remaining well within their capacity to avoid issues down the line. But if we get another hike in November then it will get very tricky.”
Lenders not surprised by rate hike call
Despite the additional pressure on borrowers, most banks were unsurprised by the RBA’s decision.
“Put simply, higher-than-expected inflation for July and ongoing capacity constraints in the economy along with a renewed surge in global energy prices and the data centre boom adding to demand suggested it will take even longer to get inflation back to target than the end of next year,” said Shane Oliver, chief economist and head of investment strategy at AMP.
“This was a problem as inflation has been above target for five of the last six years including this year. So the RBA had to hike to preserve its credibility. And so, it did.”
He added: “Fortunately, increased competition and discounting means actual mortgage rates are yet to surpass their 2023 high, but they are getting close.”
Both Teachers Mutual Bank (TMB) and Macquarie have outlined when the rate rise will flow through to their customers, with TMB increasing rates by 25 basis points on 1 October and Macquarie on 15 October.
Greg Johnson, Teachers Mutual Bank Limited’s chief customer officer, said: “A large number of our members also have significant savings with the bank, and this rate change provides higher returns on the money they have worked hard to put aside.”
Broker Daily has previously reported on the speed at which lenders pass on rate hikes compared with rate cuts.
The end of tightening?
Sally Auld, chief economist at National Australia Bank said that while this call was expected, any further hikes would be far less certain.
“It is important to note that with policy now considered restrictive (or close to) by the Monetary Policy Board, each decision to hike from here is – by definition – a tougher call,” she said.
“This is especially so if activity data are printing weaker than expected, as has been the case in the past week or so (household spending indicator, unemployment rate, PMIs).
“Moreover, our forecasts as they stand today – cash rate peaking at 4.6 per cent, core inflation in the target band by end 2027 – will see the real cash rate at ~1 per cent or higher for the next 12–18 months.”
ANZ head of Australian economics Adam Boyton said the tone of RBA governor Michele Bullock’s remarks, alongside the unanimous decision, reinforced his forecast of a further hike.
“That unanimous decision, and the hawkish tone to the post-meeting statement, have us continuing to expect a follow-up rate hike in November,” he said.
However, Boyton noted some “dovish elements” to Bullock’s post-decision remarks.
“The statement notes ‘signs that growth in consumer spending is easing gradually as expected, although housing prices have fallen in most capital cities and new housing loans have declined noticeably.’
“Still, these elements strike us as being more than offset by the hawkish closing and also the opening.”
The Commonwealth Bank of Australia (CBA) said it still expected a hold, but with risks tilting towards a November hike.
“This posture reaffirms our expectation that rates will remain on hold until mid‑2027. The board appears open to seeing how the economy responds to rate hikes, but will have little tolerance for further upside surprises,” said CBA senior economist Ashwin Clarke.
“We have previously highlighted that a large upside surprise to inflation could trigger a follow-up rate hike. Any surprise will need to be weighed against the governor acknowledging that monetary policy cannot change near‑term inflation given the lags.”
Associations urge reviews
The Mortgage and Finance Association of Australia CEO Anja Pannek said the higher-rate environment reinforced the value brokers can provide by helping borrowers secure the best possible rate.
“When more than 8 in 10 new home loans are being facilitated by mortgage brokers, it is clear Australians value having someone who can help them navigate their options,” Pannek said.
“That becomes even more important when rates move. Borrowers want to understand what a decision like today’s means for their household and what, if anything, they can do about it.”
Similarly, Finance Brokers Association of Australia CEO Leo Gagic encouraged brokers to be proactive with their clients.
“Today’s RBA rate increase is yet another reminder that many Australian borrowers continue to face financial pressure. The months ahead may present further challenges for consumers.
“At the FBAA, we know the vital role brokers play during times like these. I encourage brokers to be proactive and connect with their clients, particularly those who may already be finding repayments difficult.
“A simple conversation can provide reassurance, help a client understand what this increase means for them and identify whether their lending arrangements should be reviewed.
“That guidance and support helps clients make informed decisions when they need it most.”
[Related: SMEs defy economic headwinds, but growth strategy shifts]
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