And What It Means If Rates Rise Again

In February, interest rates increased again, adding further pressure to Australians looking to buy their first home in 2026.

For many first home buyers — particularly in capital cities where the average purchase price is now close to $1 million— rising interest rates don’t just affect future repayments. They directly impact how much you can borrow today.

At Greenline Home Loans, we’re seeing this play out daily. First home buyers, self-employed Australians, and borrowers with complex financial circumstances are all being affected by tighter lending conditions. The good news is that banks are no longer the only option.

Why Interest Rate Rises Reduce Borrowing Power

When you apply for a home loan, lenders don’t assess you at the current interest rate alone. They apply a serviceability buffer, meaning they test whether you could still afford repayments if rates rise further.

As interest rates increase:

• assessment rates rise
• borrowing capacity falls
• approvals become harder at higher price points

This impacts first home buyers immediately — even before they own a property.

In cities like Sydney, Melbourne, Brisbane and Perth, where $1 million has become a common entry price, even a small reduction in borrowing power can mean missing out on properties that were previously within reach.

A Real Example: Buying a $1 Million Home in 2026

Let’s look at a realistic scenario we see often.

Buyer profile

• Couple purchasing their first home
• Combined income: $190,000
• Deposit and savings: $120,000
• Target purchase price: $1,000,000
• Loan required: approximately $880,000

After the February Interest Rate Rise

Before the most recent rate increase, this couple may have comfortably met a major bank’s servicing requirements and expected to borrow close to the $880,000 needed.

After the February rate rise, their borrowing capacity may now be tight or borderline, even though:

• their income hasn’t changed
• their deposit hasn’t changed
• their lifestyle and expenses haven’t changed

This is a common experience for first home buyers in 2026.

What If Interest Rates Rise Again?

If there is another 0.25% rate rise later in 2026, the impact compounds.

Lenders would reassess this couple at an even higher assessment rate. While nothing has changed financially for them, their maximum approved loan amount could reduce further.

Hypothetical Outcome After Another Rate Rise

• Maximum loan reduces from ~$880,000
• New maximum loan may fall closer to $800,000–$820,000 (approximate, varies by lender)

With the same $120,000 deposit, this reduces their maximum purchase price to around:

$900,000–$930,000, instead of $1,000,000

Why This Matters

A drop from $1 million to $900,000 isn’t minor.

It can mean:

• moving further from the CBD
• compromising on land size or property type
• losing competitiveness at auctions
• missing out on homes they previously qualified for

And importantly, this shift can happen without any change to income, savings, or spending.

Why Banks Can Be Restrictive in 2026

Major banks are designed for standard lending profiles:

• stable PAYG income
• simple financial structures
• predictable expenses

If your situation doesn’t fit neatly into this model — for example if you’re self-employed, a contractor, or have multiple income streams — a bank may:

• reduce your borrowing capacity
• apply conservative assumptions
• decline an otherwise strong application

This doesn’t mean you’re high risk. It often means the application doesn’t fit that bank’s internal risk model.

How Greenline Home Loans Creates More Options

At Greenline Home Loans, we work with a broad panel of lenders — including non-bank and specialist lenders — who assess risk differently to traditional banks.

Non-bank lenders are:

• fully regulated
• well-established in Australia
• widely used across the mortgage market

They often provide:

• more flexible serviceability assessments
• alternative ways to assess income
• better outcomes for self-employed borrowers
• solutions for complex or non-standard circumstances

For many first home buyers in 2026, especially those close to the borrowing limit, this flexibility can be the difference between buying a home or being priced out.

What First Home Buyers Can Do Now

If you’re planning to buy your first home this year, preparation is critical.

We recommend:

• getting a proper borrowing assessment early
• understanding how rising rates affect your borrowing power
• reducing short-term debts and unused credit limits
• considering both bank and non-bank options
• structuring your loan for today’s interest rate environment

The earlier this is done, the more options you’ll have — even if rates rise again.

The Bottom Line

February’s interest rate rise has made borrowing more challenging for first home buyers in 2026, particularly in capital cities where $1 million is now a common purchase price.

If rates increase again, many buyers may see their maximum purchase price reduce by $50,000 to $100,000 or more, even without any change to income or savings.

However, with the right strategy, access to non-bank lenders, and advice tailored to your circumstances, buying your first home is still achievable.

Thinking about buying your first home in 2026?

At Greenline Home Loans, we specialise in helping first home buyers — including self-employed and complex borrowers — navigate rising interest rates and changing lending conditions.

Get a personalised first home buyer assessment – Contact Us
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