Since the RBA began raising rates in February, borrowing for housing has lost momentum while business borrowing has stayed strong, a split that tells its own story about how tighter policy is working.

Credit is where monetary policy meets the real economy. When the cash rate rises, the question is not only what happens to interest rates, but whether households and businesses actually borrow less.

In 2026, the RBA's answer has been that housing credit is cooling. "housing credit growth, which moves closely with housing prices, has started to slow," Assistant Governor (Financial Markets) Christopher Kent said in his remarks in Sydney on 13 August.

Business credit, by contrast, has kept growing at a robust pace. The divergence is one of the more revealing features of this year's tightening cycle.

From February to now

The Monetary Policy Board's first increase of the year came on 3 February, lifting the cash rate target from 3.60 per cent to 3.85 per cent. Further rises followed on 17 March (4.10 per cent) and 5 May (4.35 per cent). After holding in August, the Board raised the rate to 4.60 per cent on 29 September.

By August, after three of those increases, Kent was confident they were biting. "the three cash rate increases earlier this year are having their intended effects," he said. He pointed to a cluster of housing-related signals:

  • "Growth of new housing loans has fallen significantly."
  • "Housing prices have declined in Sydney and Melbourne, with declines becoming increasingly broad-based."
  • "forward indicators such as auction clearance rates have also declined to be below their long-run averages."
  • "Scheduled mortgage payments have risen and are now close to their 2024 peak as a share of household disposable income."

He also said "Lending and deposit rates have increased in line with the cash rate," the first link in the chain from the cash rate to borrowing behaviour.

Why housing credit tracks prices

Kent's description of housing credit as moving "closely with housing prices" is worth dwelling on. It implies that the two tend to move together, so a cooling property market and slower lending growth are, in effect, two views of the same trend.

In 2026, both sides of that relationship have softened. The August Statement on Monetary Policy recorded national housing prices down 1.6 per cent from their March peak. By September, Governor Michele Bullock told the House of Representatives Standing Committee on Economics: "Housing prices have fallen in most capital cities and new housing loans have declined."

Interest rates are not the only factor. Kent also noted that "tax changes announced in the federal budget appear to have contributed to reduced demand in the established housing market." That suggests some of the slowdown in housing lending reflects influences beyond monetary policy.

The Board's 29 September statement brought the picture up to date, saying housing prices have fallen in most capital cities and new housing loans have declined noticeably. It also described the effects of the housing downturn as uncertain.

The business side tells a different story

While housing credit has cooled, business borrowing has not. The Board's September statement said business investment and debt growth are strong.

The RBA's October 2026 Financial Stability Review reinforced that, noting business credit growth has been "above its post-GFC average for a couple of years". The review also found private credit accounts for about 10 per cent of business debt and less than 2 per cent of financial system assets.

The August Statement on Monetary Policy forecasts, prepared before the September hike, had business investment growing 6.5 per cent over the year to June 2026, with growth expected to slow in later years.

Strong business investment and borrowing are part of why the Board judged more tightening was needed. Bullock said at her 29 September media conference: "Inflation is too high and has been driven by domestic capacity pressures." The Board's statement listed capacity pressures among the upside risks to inflation that were materialising, alongside higher global energy prices, AI-related demand pushing up technology goods prices and firms raising or planning to raise prices.

What slower housing credit means for stability

A slowdown in housing lending can raise questions about bank resilience. The Financial Stability Review addressed this directly. Its media release said banks are well positioned to keep lending in a downturn and that most mortgage households are well placed to cope even with a sharp fall in house prices, although there are some pockets of stress.

On households, the review found negative equity affects "less than 1 per cent of borrowers" and that arrears on loans 90 or more days past due have risen slightly but remain "around pre-pandemic levels". Bullock told parliament that "housing prices are still around 50 per cent higher than they were in early 2020."

The review's bank stress test went further, modelling an adverse scenario including a 3 per cent fall in GDP, unemployment rising to 6.3 per cent and a 20 per cent fall in housing and commercial property prices. In that scenario, the banking system's CET1 capital ratio fell from 12.4 per cent to "around 11.6 per cent".

None of this means the adjustment is complete. Bullock has been clear that this year's tightening has not finished feeding into the economy. Of the three earlier increases, she said: "A lot of that effect is still to flow through." She added that it "can take 12, perhaps even 18 months" for rate changes to work through fully.

That suggests the slowing in housing credit observed so far may not yet reflect the full effect of 2026's rises, including the September increase. Whether business borrowing also eases is another open question.

On what comes next for rates, Bullock said: "I'm not going to give you forward guidance." The Board's next decision is due at 2.30 pm on 3 November.

The bottom line

Since the RBA's first hike in February, housing credit has shifted down a gear. Kent's observation that it "has started to slow", alongside a significant fall in the growth of new housing loans and declining prices across most capital cities, shows tighter policy and other factors, including budget tax changes, weighing on property-related borrowing.

Business credit has moved the other way, with investment and debt growth still strong. That split helps explain why the Board judged in September that the job was not yet done. With much of this year's tightening still to flow through, lending data will remain an important guide to how far the cycle has progressed.