Key Highlights

  • The RBA has lifted the cash rate to 4.85%, its fifth rise this year.
  • Borrowing capacity is estimated to be down about 11.5%, or more than $105,000, since the cycle began.
  • Investors face new negative gearing rules alongside the higher rates.
  • Borrowers with variable loans will feel the rate rise first.

Tuesday's rate rise has turned a property analyst's warning into reality. Two days before the Reserve Bank lifted the cash rate to 4.85%, Reports said that one more 25 basis point increase would leave borrowing capacity about 11.5%, or more than $105,000, lower than when the hiking cycle began. That rise has now happened, the fifth this year, and it lands as buyers and investors also adjust to the new tax rules.

The fifth hike in 2026

The RBA Board voted six to three on 3 November to raise the cash rate target by 25 basis points to 4.85%. Three members preferred to leave it at 4.60%.

The Board said "a further tightening in financial conditions is warranted" because Inflation "remains elevated" and "is broadly based". It now expects inflation "to remain above 3 per cent for the coming year".

Observers described it as the fifth rise this year and said the cash rate is at its highest since late 2008. the November report, written before the decision, noted the RBA had "already lifted the cash rate by 100 basis points this year, taking it to 4.60%" across four hikes. Adding Tuesday's move, the cash rate has risen 1.25 percentage points in 2026.

What the index estimates

Research director Tim Lawless said in the November Home Value Index that "another rate hike would mean borrowing capacity has dropped by around 11.5%, or more than $105,000" through "the rate-hiking cycle to date".

He also estimated that a further 25 basis point increase would take the average variable Mortgage rate for owner-occupiers to around 6.7%.

These are modelled estimates for a stylised borrower. the report does not set out the income, Loan term or lender serviceability buffer behind the figures, and each lender applies its own assessment. A specific household's result could be higher or lower.

Lower borrowing capacity can shrink the pool of buyers able to bid at a given price, which is one channel through which rate rises feed into home values.

The index showed national home values fell 1.2% in October, a seventh straight monthly decline, with a national median dwelling value of $884,855.

Hypothetical example: borrowing power and repayments

Hypothetical example: a couple were assessed as able to borrow $900,000 before the hiking cycle began.

Applying the estimated 11.5% fall, their maximum loan would now be about $796,500, a reduction of $103,500. For comparison, the "more than $105,000" figure implies its stylised borrower started with capacity of a little over $910,000.

Now take an existing owner-occupier with a $600,000 principal-and-interest loan over 30 years. Assume their variable rate rose by the full 1.25 percentage points this year, from 5.45% to 6.70%.

Monthly repayments would rise from about $3,388 to about $3,872, an increase of roughly $484 a month, or more than $5,800 a year. The single 25 basis point move this week, from 6.45% to 6.70% on the same loan, adds about $99 a month.

These figures assume full and immediate pass-through by the lender, which does not always happen. They are illustrative and not a forecast for any loan.

The tax angle for investors

For property investors, higher rates mean higher interest costs, and those costs interact with the new negative gearing rules.

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, negative gearing is limited to new builds for residential property bought after 7:30pm AEST on 12 May 2026, applying from 1 July 2027. Properties held before that cut-off are grandfathered.

Hypothetical example: an investor with a $600,000 interest-only loan on a grandfathered property faces an extra $1,500 a year in interest after this week's 0.25 percentage point rise.

If that interest is deductible and the investor's marginal rate is 30% plus the 2% Medicare levy, the deduction reduces tax by $480, leaving an after-tax cost of $1,020 a year.

An investor who bought an established dwelling after the 12 May cut-off would generally not be able to set that extra interest against wages from 1 July 2027. The full $1,500 would then be felt in after-tax Cash Flow in the year it is paid, subject to how the new rules treat the excess deductions.

The same Act replaces the 50% CGT discount with cost-base indexation and a 30% minimum tax for gains accruing from 1 July 2027. Those measures sit alongside rates as a Factor the RBA itself has linked to the housing downturn.

What lenders and policymakers are saying

The RBA's November Statement on Monetary Policy said home prices in September were "almost 5 per cent below their March peak", reflecting "higher interest rates and tax changes announced in the federal budget". It added that "new housing lending has fallen sharply".

The Statement's forecasts assume a cash rate averaging 4.9% in 2026–27 and 4.8% in 2027, based on market pricing as at 28 October. That suggests markets were not pricing in quick relief.

Westpac chief executive Anthony Miller has said rates are likely to stay elevated into 2027, according to reports.

On the fiscal side, Prime Minister Anthony Albanese said the rate rise "confirms the government's decision to look for savings before the end of the year", with Labor flagging savings in the mid-year budget update.

What to watch / key dates

  • Lender announcements over the coming days on how much of the 0.25 percentage point rise is passed on to variable rates, and from when.
  • Early December 2026: the next Home Value Index, including any update to its borrowing capacity estimate.
  • December 2026: the mid-year economic and fiscal outlook (MYEFO), date not yet published.
  • 5–6 and 13 November 2026: Senate committee hearings and report on the Tax Reform No. 3 Bill and the discretionary trusts minimum tax bill, which are not yet law.
  • The RBA's next Board meeting and February 2027 Statement on Monetary Policy.
  • 1 July 2027: the new CGT and negative gearing rules start to apply.

For borrowers, the practical question is how much each lender passes on and how its serviceability test responds. the 11.5% figure is a broad estimate of the squeeze, not a lender's answer for any single application.