Australian mortgage brokers face a tougher year ahead as higher mortgage rates and still‑elevated house prices erode borrowing capacity for first-home buyers and property investors.
A new Moody’s Ratings sector in‑depth report warns that “further interest rate rises together with high housing prices are set to worsen affordability for new homebuyers over the rest of 2026”, increasing the risk of delinquencies in RMBS pools.
Moody’s measures affordability as the share of average after‑tax household income needed to service repayments on a typical new 25‑year principal-and-interest loan at 80% LVR.
“As of March 2026, our housing affordability measure for Australia was 29.6%,” up from 28.6% in December 2025, the report states. Sydney remains the clear outlier, with “Sydney (40.4%) was by far the least affordable city in March,” followed by Brisbane at 31.7%.
Taken together, these metrics show a clear deterioration in entry‑level borrowing power.
That is already visible in the market, with Canstar estimating the March 0.25 percentage point cash rate rise alone has cut maximum borrowing capacity by about $12,000 for a single average‑income borrower and $24,000 for a dual‑income couple, with the two 2026 hikes together reducing capacity by roughly $25,000 and $49,000 respectively for single and dual‑income borrowers.
After easing through 2025, the Reserve Bank has lifted the cash rate twice in early 2026 to 4.1%, and Moody’s expects further tightening as policymakers combat resurgent inflation. RBA has cited “domestic inflationary pressures” and global tensions, while the big four banks now tip another 0.25 percentage point move in May that would take the cash rate to 4.35% and effectively unwind the 2025 cuts.
Higher policy rates are already pushing up mortgage costs for both owner‑occupiers and investors, and the report shows these lending rates moving materially higher in 2026.
At the same time, dwelling prices remain elevated. Population growth driven by steady migration, combined with years of under‑building and high construction costs, is keeping housing supply tight. Moody’s notes that new dwelling completions are well below levels implied by current population gains, limiting relief for stretched buyers.
Household incomes have risen solidly over the past year, but wage growth is only just keeping pace with inflation, and house price growth has outstripped income growth in most capitals since 2023, leaving new borrowers with less buffer.
Government support is helping more first‑home buyers into the market via the expanded 5% deposit scheme, which has boosted new loan volumes. However, many of these borrowers are taking loans above 80% LVR, leaving them more exposed to rising mortgage rates and repayment shocks.
Investor lending growth has recently been running at its fastest pace in a decade, supported by strong rental growth and very low vacancy rates across the capitals. Moody’s modelling shows that if the cash rate climbs to 4.6% and prices rise a further 6%, the national affordability measure could approach one‑third of household income.
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