Borrowing capacity against falling prices

Canstar estimates that rate rises could cut an average couple’s borrowing capacity by up to $92,500 this year. PIPA Chair Cate Bakos told News Corp that falling prices help only the buyers who can still act on them.

What the figures showed

David Bonaddio reported for News Corp on the 10th of August 2026 on Canstar estimates of borrowing capacity. Three cash rate rises this year had reduced the maximum borrowing capacity of a couple each earning the average wage by an estimated $70,700. A fourth rise would take the reduction to $92,500. For a single buyer on the average wage, the reduction was $35,400, rising to $46,300 after a further increase.

Canstar calculations based on NAB forecasts and Cotality data put Sydney’s median house price about $162,000 lower over the calendar year, and Melbourne’s about $90,000 lower. Brisbane, Perth and Adelaide were forecast to fall between August and December but finish the year above where they began, after growth earlier in 2026. Hobart was forecast to rise.

Cate Bakos on buyers’ capacity

Cate Bakos, Chair of PIPA, said first home buyers are not automatically better off because values are falling.

If borrowing capacity falls at a faster rate than house prices are falling, then obviously the outcome for a buyer is negative.

Cate Bakos, Chair of PIPA, quoted by News Corp, the 10th of August 2026

She said buyers with stronger incomes and enough serviceability to secure the loan they need are best placed to benefit from weaker prices. Others may be pushed from houses into units, or further from the major cities.

Reading the two figures together

The article supplies both halves of the calculation Ms Bakos described. In Sydney and Melbourne, the forecast fall in the median house price over the year is larger in dollar terms than the fall in an average couple’s borrowing capacity. In Brisbane, Perth and Adelaide, prices are forecast to end the year higher while capacity has fallen. A buyer in those three cities faces both a higher price and a smaller loan.

The comparison is general. The median price describes the whole market rather than the segment a particular buyer can afford, and each household’s capacity depends on its own income, debts and deposit. Whether the market has moved in a particular buyer’s favour depends on that buyer’s own income, debts and deposit.

Frame Finance director Imogen Alexy added that buyers who delayed six to twelve months to save a larger deposit have returned to find that higher rates had cancelled the benefit of the extra savings.

Negative equity for owners who hold

Canstar’s Sally Tindall warned that recent buyers with little equity could face negative equity if the forecasts are realised. Ms Bakos said those owners should not necessarily be alarmed if they intend to remain in the property. She told News Corp that “negative equity only bites if you crystallise a loss”. A fall in valuation becomes a realised loss when the owner sells.

The owners at risk are those who may need to sell within the next few years, because of a change in income, relationship or employment. For those owners, the size of the repayment buffer is the more relevant measure.

Buying in a buyer’s market

Ms Bakos cautioned buyers who have the capacity to purchase against waiting indefinitely for further falls, saying a recovery will come and some buyers will regret having missed it. She said current conditions favour purchasers who are financially able to act. PIPA’s commentary on buying at auction without competition sets out the preparation such a buyer needs before bidding.

A written capacity assessment

The calculation Ms Bakos described can be done for an individual household before any property is chosen. It compares borrowing capacity at the current rate and at a higher one with recent sales in the target area. QPIA accredited advisers work from that evidence, and are listed in PIPA’s adviser search.