Interest rate hikes slash first-home buyer borrowing capacity by thousands

Couples trying to break into the housing market could be $73,100 worse off as successive interest rate hikes smash their borrowing capacity.

Fresh figures from comparison site Canstar show first-home buyers are being hammered by rate hikes.

According to the figures, an Australian earning the average full-time wage of $106,950 borrowing capacity falls $11,700 with each rate rose.

When February and March’s rate hikes are added in, this borrower’s capacity would fall by $36,5000.

For a couple with both partners on $106,950, the three interest rate hikes would reduce borrowing capacity by $73,100.

Canstar data insights director Sally Tindall says interest rate hikes also impact those trying to break into the market.

“The rate hikes in February and March have taken a serious bite out of the home buying budgets for those borrowing at capacity and there could be more pain to come as early as Tuesday,” she said.

Money markets say there is an 80 per cent chance the Reserve Bank of Australia (RBA) lifts interest rates for the third straight time on May 4-5, by another 25 basis points.

This is due to official figures released by the Australian Bureau of Statistics show the pain motorists have been feeling for months, with headline inflation jumping by 1.1 per cent in the March quarter, largely due to surging oil prices.

The Consumer Price Index rose 4.6 per cent in the 12 months to March 2026.

The latest number is Australia’s highest inflation since September 2023 when the nation’s economy was rebounding after Covid-19.

Should the RBA lift rates again in May, it would completely reverse the three rate cuts in 2025 taking the cash rate back to 4.35 per cent.

However, in a silver lining for first-home buyers, the prices of properties are also starting to slow in part due to back-to-back interest rate hikes.

Stats released by REA Group showed national home prices increased 0.3 per cent in March, taking the national median home value to $908,000 in April.

Prices are now 9.4 per cent higher than a year ago, adding about $94,800 to the value of the median home.

But REA Group senior economist Eleanor Creagh noted house price growth was moderating.

“This points to a slowdown in growth emerging across the country and a clear turning point in the cycle, as rising interest rates weigh,” she said.

Overall, capital city prices were up 0.3 per cent over the month, in line with national prices, lifting the median home value to $1.016m.

Brisbane emerged as the strongest performer in March with a 0.7 per cent monthly increase, followed by Perth at 0.5 per cent and Adelaide at 0.4 per cent.

Prices in Sydney and Melbourne lifted by 0.2 per cent each, although they were showing early signs of falling.

“While price declines remain limited, they are beginning to emerge in some inner and middle ring markets, most notably in Sydney and Melbourne,” Ms Creagh said.

“Momentum has eased, with more than three quarters of SA4 regions recording a deceleration in monthly growth relative to February.”