Presm blog

How the RBA's October 2026 Rate Decision Impacts Your Borrowing Power

The RBA's October 2026 decision reaches your borrowing power through your lender's assessment rate. Here is how a 0.25 point move changes what you can borrow, with worked hypothetical scenarios.

Every time the Reserve Bank Board announces a cash rate decision, the headlines go straight to repayments. For anyone planning a purchase, a quieter number matters just as much: how much a lender is now prepared to lend you.

This October, buyers and investors are weighing the Board's latest call. You might be refinancing, chasing pre-approval or lining up your next investment. Either way, here is how that decision flows through to your borrowing power, and how to work out your own number rather than relying on a headline.

Key Takeaways:

- The cash rate does not set your borrowing power directly. It moves your lender's variable rate, and the lender then adds a serviceability buffer before testing whether you can afford the loan.

- Because the buffer sits on top of the actual rate, a 0.25 percentage point move changes the assessment rate by the same amount. In our hypothetical example, that shifts maximum borrowing by roughly 2 per cent.

- Repayments and borrowing power respond differently. A rate change alters what you pay on an existing loan, but it alters the size of a new loan through the assessment rate.

- Lenders do not always pass on cash rate changes in full or on the same day, so two banks can produce different borrowing figures after the same RBA decision.

- Investors face extra variables: how lenders shade rental income, how they assess existing debts, and APRA's debt-to-income settings.

What the October Decision Actually Changes

The RBA sets one number: the target for the cash rate, which is the interest rate on overnight loans between banks. It does not set mortgage rates, and it does not set lending policy.

What the decision does is change the cost of funds for banks. Lenders then decide how much of any change to pass through to their variable home loan rates, and when. Fixed rates are priced differently, largely off wholesale funding markets. Those markets tend to move on expectations about future rates rather than on the day of a decision.

So after any announcement, the RBA's media release is only the first thing to check. The second is what your own lender, or the lender you plan to use, has done with its variable rates in response. The official cash rate target and the Board's statement are published on the RBA website. Your lender's response is what feeds your borrowing power.

How a Cash Rate Move Reaches Your Lender's Assessment

Lenders do not ask whether you can afford the loan at today's rate. They ask whether you could afford it if rates were meaningfully higher. That is the serviceability test, and it runs in four broad steps:

1. Income is assessed. Salary is usually counted in full. Bonuses, overtime, self-employed income and rental income are often only partly counted.
2. Expenses are assessed. The lender takes the higher of your declared living expenses and a benchmark measure for a household like yours.
3. Existing commitments are loaded. Other home loans, car loans, personal loans and credit card limits are deducted, often at stressed repayment levels rather than what you actually pay.
4. The new loan is tested at the assessment rate. This is the product rate plus a buffer, and the surplus left over determines the maximum loan.

A cash rate decision touches step four. Suppose your lender lifts its variable rate by 0.25 percentage points. The assessment rate rises by the same amount, and the surplus you have left over now supports a smaller loan. A cut works the other way.

The Serviceability Buffer Does the Heavy Lifting

The Australian Prudential Regulation Authority (APRA) expects banks to assess new borrowers at a buffer above the loan's interest rate. APRA lifted that buffer to 3 percentage points in October 2021. Check APRA's website for the current setting when you apply.

The buffer matters because it means your loan size is already constrained before any RBA move. If your product rate is, say, 6 per cent, your borrowing power is not tested at 6 per cent. It is tested at around 9 per cent. Repayments at that higher rate take a bigger bite of assessed income.

Two practical points follow:

• The buffer is additive, not proportional. A 0.25 point rise in your lender's rate becomes a 0.25 point rise in the assessment rate. It does not get multiplied.
• Some lenders apply a floor. Certain lenders use a minimum assessment rate. If product rates fall, that floor may limit how much a cut lifts your borrowing power. Ask your broker or lender whether one applies.

A Hypothetical Borrower: Three Rate Scenarios

To see the scale of the effect, consider a hypothetical borrower. After the lender has assessed income, living expenses and existing debts, this person has $4,500 a month available to service a new loan. The loan is principal and interest over 30 years, and the lender adds a 3 percentage point buffer.

Here is how the maximum loan changes across three hypothetical product rates. They correspond to a cut, a hold and a rise of 0.25 percentage points.

The maths is simple: divide $4,500 by the monthly repayment per dollar borrowed at the assessment rate. At 9.00 per cent, every $100,000 costs $804.62 a month. So $4,500 supports about 5.59 times $100,000, or roughly $559,300.

In this example, a single 0.25 point move shifts borrowing power by around $12,000 to $13,000, or a little over 2 per cent. Two moves in the same direction roughly double that.

This is a simplified model. Real lenders also adjust for changes in their expense benchmarks, the way they treat your other debts, and their own policy on minimum rates. That is why running your own figures through the Borrowing Power Calculator is more useful than any rule of thumb.

Repayments and Borrowing Power Are Two Different Numbers

It is easy to blur these together, but they answer different questions.

Repayments are what you actually pay each month on the loan you hold, at your real interest rate. If your lender passes on a change, your repayment adjusts, usually after a notice period.

Borrowing power is what a lender would approve for a new loan, tested at the higher assessment rate.

The table below uses a hypothetical $600,000 loan over 30 years, principal and interest:

A move of around $96 to $97 a month on an existing loan may feel manageable. The same 0.25 point change, however, takes roughly $12,000 off the new borrower's ceiling in the earlier example. For someone at the edge of their budget at auction, that can be the gap between bidding and watching.

To see your own repayment under different rates, the Loan Repayment Calculator lets you change the rate, term and loan type and compare the results.

Why Lenders Can Diverge After the Same Decision

Two buyers with identical finances can walk away from two lenders with different borrowing figures, even after the same RBA announcement. The main reasons:

• Pass-through varies. Lenders choose how much of a cash rate change to apply to variable rates, and whether to treat new and existing customers differently.
• Timing varies. Changes to variable rates usually take effect after a set period, and that period differs between institutions.
• Assessment rate floors. As noted above, some lenders apply a minimum, which affects how much a cut flows through.
• Expense and income policies. How a lender shades bonuses, overtime, rental income or self-employed earnings can matter more than a 0.25 point rate move.
• Pre-approval validity. Pre-approvals are typically conditional and time limited. A lender can reassess at formal approval, so a pre-approval issued before a rate rise may not hold at the same figure afterwards.

The lesson: if a rate change lands while you are still searching, ask your lender or broker to rerun your serviceability. Do not assume your pre-approval still stands.

What Investors Should Check Beyond the Rate

For investors, the cash rate is only one input. Several other variables can move borrowing power just as much.

Rental income shading. Lenders rarely count 100 per cent of gross rent. They apply a discount to allow for vacancy and costs, and the size of that discount varies. A higher rent on a prospective property can partly offset a rate rise, but only to the extent the lender counts it.

Existing debts at stressed rates. If you already hold investment loans, each one is usually assessed at the buffer rate too. A 0.25 point rise therefore increases the assessed cost of every existing loan, not just the new one. This is where portfolio builders often find borrowing power falls faster than they expected.

Interest-only terms. Interest-only loans are generally assessed on the principal and interest repayment over the term remaining after the interest-only period ends. That makes them more expensive in a serviceability test than the repayment you actually make.

Debt-to-income limits. APRA announced in November 2025 that, from February 2026, banks would be limited in the share of new lending they can write at a debt-to-income ratio of six times or more. If your total debts are already high relative to income, that limit can bind before the serviceability test does, wherever rates sit.

Deposit and LMI. A smaller loan ceiling sometimes pushes buyers toward a higher loan-to-value ratio to stretch further. Before you do, check the premium with the LMI Calculator. Lenders mortgage insurance can add materially to the cost of buying with a smaller deposit.

A Practical Checklist for the Weeks After the Decision

Rate announcements create noise. These steps cut through it:

1. Find your lender's response. Note the new variable rate and the date it takes effect.
2. Rerun your borrowing power. Use the new product rate plus the buffer, and update your living expenses honestly.
3. Reassess your target price. Your price ceiling is roughly borrowing power plus deposit, minus upfront costs. Use the Stamp Duty Calculator to confirm transfer duty in your state, since duty comes out of the same cash.
4. Check your existing debts. Closing an unused credit card or reducing its limit can lift borrowing power, because lenders typically assess limits rather than balances.
5. Stress test your own budget. The lender's buffer protects the lender. Model what happens to your cash flow if your actual rate moves by a further 1 or 2 percentage points, and decide whether you are comfortable with that.
6. Confirm pre-approval status. If you hold one, ask whether it is still valid at the same amount.

Presm calculates and models these scenarios. It does not forecast where the cash rate or property prices will go. The value lies in testing a range of outcomes rather than betting on one.

Frequently Asked Questions

Does the RBA decision change my borrowing power immediately?

Not directly. Your borrowing power changes when your lender adjusts its variable rates, which feeds its assessment rate. That can happen days or weeks after the announcement, and some lenders do not pass on changes in full.

How much does a 0.25 per cent rate rise reduce borrowing power?

It depends on your income, expenses and debts. In our hypothetical example, with $4,500 a month available for repayments, a 0.25 point rise cut maximum borrowing by about $12,300, or a little over 2 per cent.

Why is my borrowing power tested at a higher rate than my loan rate?

APRA expects lenders to assess new loans at a buffer above the actual rate. That buffer has been 3 percentage points since October 2021. It checks that you could still meet repayments if rates rose.

Will a rate cut increase what I can borrow?

Usually, if your lender passes it on. However, some lenders apply a minimum assessment rate, and APRA's debt-to-income limits may cap highly geared borrowers regardless of rates.

Is my pre-approval still valid after a rate change?

Not necessarily. Pre-approvals are conditional, and lenders can reassess at formal approval. Ask your lender or broker to confirm the amount after any rate change.

Rate decisions will keep coming, and each one shifts the numbers a little. The buyers who handle them best know their own figures before the headlines land. Create your Presm account to run your borrowing power, repayment and duty scenarios with Presm's calculators whenever the cash rate moves.