What Two Rate Rises in a Row Actually Do to Borrowing Capacity

The RBA raised the cash rate in February 2026 and again in March, bringing it to 4.10%. For borrowers who were assessed during the 2025 cutting cycle — when the cash rate sat at 3.60% — that sequence of moves has a direct effect on what lenders will now approve.

The effect isn't always intuitive. A borrower's income may not have moved. Their existing debts may be unchanged. Their repayment history may be clean. And yet the borrowing capacity figure produced by a new application today will often be lower than the one produced six or twelve months ago.

This happens because of how lenders are required to assess serviceability — specifically, the buffer they apply above the actual interest rate on offer.

Under APRA's serviceability guidelines, lenders must assess whether a borrower can meet repayments at a rate at least 3 percentage points above the rate being offered. This buffer is designed to test whether the borrower could service the debt if conditions changed after settlement.

The practical consequence of this is that the assessment rate moves with the underlying rate. When the cash rate rises, advertised rates rise with it, and the rate applied inside the serviceability calculation rises in turn.

A borrower assessed in mid-2025 at a cash rate of 3.60% would have had their application stress-tested at approximately 6.60% or above, depending on the lender's floor rate. The same borrower assessed today, at 4.10%, is stress-tested closer to 7.10%.

That 50 basis point difference in assessment rate — applied across the full loan amount and any existing debt obligations — produces a material reduction in the maximum borrowing capacity the lender will approve.

For a borrower who was assessed at $600,000 borrowing capacity during the 2025 cutting cycle, the shift from a 3.60% to a 4.10% cash rate environment typically produces a reduction of $20,000 to $30,000 in available capacity — depending on income, existing obligations, and the lender's specific assessment model.

The borrower hasn't changed. The property they're targeting hasn't changed. What has changed is the rate at which their proposed repayments are stress-tested, and the corresponding reduction in the maximum loan a lender will approve under current policy settings.

A pre-approval reflects the inputs at the time it was run. When those inputs shift, the figure shifts with them — regardless of what the pre-approval document says.

If the cash rate moves again in May — a possibility that a number of borrowers are factoring into their planning — the assessment environment shifts again. Each 25 basis point increase adds to the cumulative effect on assessed repayments and pulls borrowing capacity down further.

The impact of a capacity reduction depends heavily on where median prices sit. In markets where the entry price is well below what most borrowers can access, a $25,000 reduction in capacity is an inconvenience. In markets where borrowing capacity is already close to the price of available stock, the same reduction changes what's achievable.

Newcastle and Hunter Region medians are currently tracking toward $930,000 to $965,000. For buyers at or near the top of their borrowing range, a $20,000 to $30,000 reduction isn't a rounding error — it determines whether a property is in range or out of it.

This is why borrowers who were pre-approved during the 2025 cutting cycle and are now approaching contract stage should treat that figure as a reference point, not a confirmed limit. A current assessment — run against today's rate inputs, today's lender policy, and today's debt position — will produce the accurate figure for the decision at hand.

The borrowers most directly affected by this are those sitting between pre-approval and contract exchange — specifically those whose pre-approval was issued at a meaningfully lower rate than the one that applies today.

For refinancers, the same principle applies. An informal assessment of what might be achievable at a lower rate doesn't automatically translate to a successful application at a higher one. The assessment runs on current inputs each time.

For investors carrying existing loan obligations, the effect can be more pronounced. Serviceability buffers apply to existing debt as well as the proposed new loan. As rates rise, the assessed cost of the entire debt portfolio increases — which compresses what the lender will approve for new borrowing, independent of how the portfolio is actually performing.

Understanding how the assessment rate responds to cash rate movements — before relying on an older capacity figure to anchor a purchase decision — is what puts a borrower in a more accurate position ahead of application.

Serviceability assessment rates reflect APRA guidelines and individual lender policy, which may vary. Figures used are illustrative based on typical assessment mechanics and should not be treated as precise calculations for any individual borrower's situation.