Borrowing power in late 2026: the buffer at 4.60% and the six times income cap
Your borrowing power is set by two tests. First, the bank checks you could repay at your rate plus 3 points, which is now close to 9.5%. Second, banks are limited in how many loans they can write above six times your income. Since January, the first test alone has cut what a typical budget can support by about 9%.
Most people watch the interest rate and think about the repayment. The bank is looking at a different number.
When you apply, the lender does not ask whether you can afford today's rate. It asks whether you could afford a much worse one. Every time the Reserve Bank lifts the cash rate, that worse case gets worse too.
Key facts, as at 30 September 2026
- Serviceability buffer: 3 percentage points above your loan rate, unchanged since 2021
- Cash rate: 4.60%, up a full point in 2026
- Debt to income limit: no more than 20% of a bank's new loans at six times income or more, from 1 February 2026
- The limit is counted separately for owner occupiers and investors
- Not counted: loans for new dwellings, and owner occupier bridging loans
Sources: APRA, Reserve Bank of Australia
Test one: the buffer
Take a household that can put $5,000 a month toward repayments after its living costs. How big a 30 year loan does that support?
It depends on the rate the bank tests at. The Reserve Bank's published average for new owner occupier loans was 6.24% in July. We have worked back to January and forward to October by the cash rate moves, then added the 3 point buffer.
| Maximum loan | |
|---|---|
| January, tested at 8.49% | $651,000 |
| July, tested at 9.24% | $608,000 |
| October, tested at 9.49% | $595,000 |
Source: Presm arithmetic. July loan rate from the Reserve Bank of Australia. January and October are estimated from the cash rate changes. APRA's 3 point buffer added. 30 year principal and interest loan.
| When | Loan rate | Test rate | $4,000 a month supports | $5,000 a month supports |
|---|---|---|---|---|
| January 2026, estimated | 5.49% | 8.49% | $521,000 | $651,000 |
| July 2026 | 6.24% | 9.24% | $487,000 | $608,000 |
| October 2026, estimated | 6.49% | 9.49% | $476,000 | $595,000 |
That is $56,000 gone from the larger budget, without the household earning or spending a dollar differently.
A real assessment is messier. Lenders count your living expenses, other debts, credit card limits and only part of any rent you receive. This table isolates one thing: what the rate rises alone did.
Investors start further back, because investor loans cost more. The July average for new investor loans was 6.41%.
Test two: six times income
This one is newer and less understood.
Since February, the regulator has limited each bank to writing no more than 20% of its new loans at a debt to income ratio of six or more. Debt means all your debt, not just the new loan.
On a household income of $150,000, six times is $900,000 of total debt. On $200,000 it is $1,200,000.
It is a limit on the bank, not a ban on you. A bank can still say yes above six times. But it has a quota, and it will spend that quota on its strongest applicants.
Who does it bite? Mostly people who already own property. When the rule was announced, Canstar reported that about 10% of new investor loans were above six times income, against 5.5% of all new loans. A first purchase rarely gets near the line. A third one often does.
What we would do
Know your number before you look. With prices falling, it is tempting to shop first. But a home that drops 5% is no cheaper to you if your limit dropped 9%.
Clear the small debts. A credit card limit you never use still counts against you. So does a car loan with a year to run.
Ask your broker which test is stopping you. If it is the buffer, a longer term or a lower rate helps. If it is the six times cap, only less debt or more income does, or a lender with quota to spare.
Look at new builds if the cap is your problem. They sit outside it. They also keep negative gearing under the new tax law, which we cover in what counts as a new build.
For the rate rises themselves, see the cash rate at 4.60%.
Frequently asked questions
How much has borrowing power fallen in 2026?
On repayment alone, a full point of rate rises cuts the loan a fixed budget can support by about 9%. A household that can put $5,000 a month to repayments could support about $651,000 in January and about $595,000 now.
What is the serviceability buffer?
A rule from the banking regulator, APRA. Lenders must check you could still afford the loan if your rate were 3 percentage points higher than the rate they offer you.
What is the six times income cap?
Since 1 February 2026, a bank can write no more than 20% of its new home loans to borrowers whose total debt is six times their income or more. It is counted separately for owner occupiers and investors.
Does the six times income cap apply to new builds?
No. Loans to buy or build new dwellings are excluded, and so are bridging loans for owner occupiers.
Sources
- APRA, limit on high debt to income home loans
- APRA, activation of debt to income limits
- Canstar, APRA applies speed limit to high debt to income loans, 28 November 2025
- Reserve Bank of Australia, lenders' interest rates, July 2026
Loan sizes are our own arithmetic and leave out living costs and other debts. This is general information, not credit advice. Speak to your broker.