The Reserve Bank lifted the cash rate to 4.60% on 29 September, its fourth rise this year, and the major banks have confirmed they will pass it on to variable rates from 9 October. For first home buyers holding a pre-approval, the more immediate question is how much they can still borrow. Every rate rise lifts the rate lenders use to test your application, and a pre-approval issued a few months ago may no longer reflect the amount a lender would approve today.
What a Pre-Approval Actually Is
A pre-approval is a lender’s conditional indication of how much it is prepared to lend, based on your income, expenses, debts and the lender’s policy and rates at the time it was assessed. It is usually valid for three to six months and helps you set a budget and bid with some confidence.
It is not a binding commitment. Formal approval happens after you find a property, the lender values it and your circumstances are checked again. If rates, policy or your finances change in between, the amount the lender approves at that point can be lower than the pre-approval figure.
Why a Rate Rise Shrinks Borrowing Capacity
Lenders regulated by APRA test whether you can afford the loan at your interest rate plus at least 3 percentage points. When the loan rate rises by 0.25 percentage points, the assessment rate rises by the same amount, and the maximum loan your income can support falls.
As a guide, a borrower whose budget supports $5,000 a month in assessed repayments could borrow about $597,000 at an assessment rate of 9.45%. At 9.70%, the same budget supports about $584,000, a reduction of roughly $13,000 from a single 0.25 point rise. Across this year’s four rises, the effect compounds. Analysis published by The Broker Times estimated a typical borrowing limit of $800,000 at the start of the year would now be closer to $720,000.
When Your Pre-Approval Might Be Reassessed
Lenders handle rate changes on existing pre-approvals in different ways. Some honour the pre-approval amount until it expires, provided nothing else changes. Others reassess at formal approval using the rates in place at that time, which can produce a lower figure. Pre-approvals that expire and are renewed are almost always reassessed at current rates.
Should You Get Your Pre-Approval Checked Before Bidding?
It is worth confirming the figure if your pre-approval was issued before this year’s later rate rises or is close to expiry. Auctions in particular usually require you to buy without a finance condition, so the amount you can borrow needs to be firm before you raise your hand. A broker can re-run the numbers at current rates in a short time and confirm whether the lender is likely to approve the same amount.
The Repayment Side of the Equation
A lower borrowing limit is only part of the effect. The repayments on whatever you borrow are higher too. The September rise adds roughly $114 a month to repayments on a $750,000 loan, according to estimates reported by the ABC, once lenders pass it on in full.
Some buyers respond by reducing their target price, which keeps repayments closer to their original plan and leaves a buffer for further rises. Others increase their deposit or look at different suburbs or property types. Each option changes the loan-to-value ratio, which can affect pricing and whether lenders mortgage insurance applies.
How First Home Buyer Schemes Fit In
Government schemes have not changed with the rate rise. The 5% Deposit Scheme still allows eligible buyers to purchase with a 5% deposit without paying lenders mortgage insurance, subject to price caps that vary by location. The scheme reduces the deposit you need but does not change how much a lender will let you borrow, so the serviceability test still applies in full.
State-based stamp duty concessions for first home buyers can also reduce upfront costs, which may free up cash to increase the deposit and reduce the loan amount needed.
Planning Around Further Rises
Some major bank economists expect the RBA to raise rates again in November, while others expect the cash rate to stay at 4.60%. Buyers with a pre-approval in hand can ask their lender or broker what the approval would look like at a rate 0.25 or 0.50 percentage points higher. Knowing that number before committing to a purchase gives some protection against being caught short if rates rise again before settlement.
Key Takeaways
- The RBA lifted the cash rate to 4.60% on 29 September, its fourth rise of 2026.
- Lenders test applications at the loan rate plus at least 3 percentage points, so every rate rise reduces maximum borrowing.
- A single 0.25 point rise can cut borrowing capacity by roughly 2%, around $13,000 on a loan near $600,000.
- Some lenders reassess pre-approvals at formal approval using current rates, so the final figure can be lower.
- Confirming your pre-approval at current rates matters most before an auction, where purchases are usually unconditional.
- The 5% Deposit Scheme reduces the deposit needed but does not change the serviceability test.