You've probably seen the headlines. Property prices are dropping in most capital cities. On paper, that should make things easier for buyers.
But if you've tried to apply for a home loan or car finance recently, it might not feel that way. Interest rates haven't come down this year. They've gone up. And that's changed what lenders are willing to approve, even while prices fall.
Here's what's actually happening in the economy right now, and what it means for your own borrowing power.
What's actually happened with interest rates this year
The Reserve Bank of Australia raised the cash rate three times during 2026, a combined increase of 0.75%, before holding it steady at 4.35% in August. Inflation has been easing slightly, sitting at 3.5% over the year to July, but it's still above the RBA's target range. That's why some banks are now forecasting another rate rise before the end of the year, rather than a cut.
This matters because every time the cash rate moves, it flows through to home loan rates, car finance rates, and general lending. Higher rates mean higher repayments on the same loan amount. And higher repayments mean lenders will approve you for less.
Why property values are falling while rates stay high
This part confuses a lot of people. If rates are high and borrowing power is down, why isn't finance getting easier?
The answer is that falling prices and tighter lending are two sides of the same story. National property values have now fallen for five months in a row, down close to 4% from their peak earlier in the year. That's a direct result of buyers having less borrowing power to work with. Fewer people can borrow as much as they used to, so there's less competition pushing prices up.
In other words, prices are falling because finance is harder to get, not the other way around. A lower asking price doesn't automatically mean it's easier for you to get approved.
What this means for your home loan borrowing power
Lenders don't just check what rate you'd pay today. They apply a buffer on top, usually around 3%, to make sure you could still afford repayments if rates rise further. This is standard practice across the industry.
With the cash rate already higher than it was last year, that buffer is now stacked on top of a bigger number. The result is that your maximum borrowing amount can be noticeably lower than it would have been twelve months ago, even if your income and expenses haven't changed at all.
This is why it's worth getting a proper read on your current borrowing power before you start house hunting, rather than relying on what you might have qualified for last year. Our home loan services start with exactly that conversation.
It's not just home loans
Car finance and general lending are affected by the same conditions. Lenders apply the same kind of buffer and the same cost of living checks, regardless of the loan size.
So if you're planning to finance a car, consolidate debt, or apply for any kind of lending, the current interest rate environment plays a part in what you'll be approved for. It's not just a home loan issue. Our car finance options are assessed the same way.
What you can actually do about it
You can't control the cash rate. But you can control how prepared you are for it.
A few things that genuinely help right now:
- Get a current, accurate picture of your borrowing power, not one based on last year's rates
- Review your income and expenses honestly before you apply, since this is exactly what lenders will scrutinise
- Structure your existing debts and finances in a way that works with today's serviceability rules
- Get advice before you apply, especially if rates move again before the end of the year
Most people don't realise how much their situation has shifted until they've already applied and been knocked back. Getting ahead of it saves time and disappointment.
If you want the wider picture on how inflation and the economy feed into all of this, we covered it in How the Economy Affects Your Next Loan.
How Capila Finance helps
Capila Finance isn't a lender. We're a finance specialist.
Our job is to look at where you actually stand right now, in this rate environment, and help you structure your finances and your application properly. Whether that's a home loan, car finance, or another lending need, we work through your numbers with you and put together a plan that reflects current conditions, not outdated assumptions.
You don't need to guess what you can borrow. You can get a clear answer.
Let's talk about where you stand
If you're not sure what your borrowing power actually looks like in this rate environment, or you want a plan before you apply for finance, get in touch with Capila Finance. Let's work out where you actually stand.
This blog is general information only and doesn't take into account your personal financial situation. Interest rates and lending conditions can change. Please speak with a finance specialist before making any borrowing decisions.
Frequently asked questions
- Why is my borrowing power lower if property prices are falling?
- Falling prices and reduced borrowing power are connected. Interest rates have risen this year, which means lenders approve smaller loan amounts. That reduced buying power is a big part of why prices have been falling.
- Has the RBA cut interest rates this year?
- No. The Reserve Bank raised the cash rate three times during 2026 before holding it steady in August. Some banks are forecasting a further rise later in the year, not a cut.
- What is a serviceability buffer and why does it matter?
- It's an extra margin, generally around 3%, that lenders add on top of your actual loan rate when working out if you can afford repayments. It's designed to protect you if rates rise further, but it also reduces how much you can borrow.
- Does this affect car finance too, or just home loans?
- It affects both. Lenders apply the same kind of cost of living and buffer checks to car finance and general lending, just on a smaller scale than a home loan.
- Should I wait for rates to drop before applying for finance?
- That depends on your situation, and it's worth discussing with a specialist rather than guessing. Current forecasts suggest rates may rise again before they fall, so waiting isn't guaranteed to improve your position.
- How do I find out what I can actually borrow right now?
- The most reliable way is to get a current assessment based on today's rates and lending conditions, rather than relying on figures from last year or a general online calculator.