House price growth is expected to cool in 2026, but Aussie mortgage brokers are being urged to remind clients that this does not automatically translate into improved affordability.
Mortgage broker Alex Veljancevski (pictured) of Eventus Financial said many would-be buyers are misreading headlines about moderating prices.
“Even if growth is easing, that doesn’t mean borrowing power is increasing,” Veljancevski said. “Many buyers are still facing high living costs, serviceability buffers, and lending rules that limit what they can realistically spend.”
According to Cotality, national home values climbed by about 8.5% over 2025, with analysts now tipping slower but still solid growth this year. KPMG is forecasting a 7.7% rise, while Cotality’s outlook points to “a more modest performance” rather than a downturn.
“A lot of people see headlines about slowing price growth and think it’s finally their chance to get into the market,” Veljancevski said. “But borrowing capacity hasn’t improved in line with those headlines. In many cases, it’s actually harder.”
The latest RBA hike reflects concern that inflation is sticking, with CPI at 3.8% and housing – up 5.5% over the year – now the biggest driver amid chronic supply shortages. For borrowers, that environment means affordability is being squeezed even as price growth cools.
For borrowers, the main constraint remains how much they can actually qualify for under current lending rules. Lenders assess applications using a serviceability buffer of three percentage points above the actual interest rate, as required by the Australian Prudential Regulation Authority.
This test has become tougher following the Reserve Bank’s decision to raise the cash rate by 25 basis points at its February 2026 meeting to 3.85%.
“Climbing interest rates on top of the serviceability buffer can increase monthly loan repayments by more than $100 for a borrower who owns a median-priced house in Sydney. The figures are lower but still significant in other locations,” Veljancevski said.
For brokers, that means carefully managing expectations with pre-approvals and active buyers who may assume softer price growth equals a bigger budget, when in reality the assessment rate and higher repayments are often cutting their maximum loan size.
Elevated household expenses are further eroding borrowing capacity. “Groceries, energy bills, insurance premiums and childcare costs all factor into serviceability assessments, reducing the amount buyers can borrow,” Veljancevski said. “Many buyers focus solely on home prices, overlooking the full picture of affordability, which includes borrowing capacity, living costs and lending rules.”
The impact is particularly severe for first-home buyers, who tend to have smaller deposits and minimal equity. KPMG analysis from the end of 2025 shows the share of homes within budget for an average first-home buyer has fallen to just 12% of housing stock, down from 30% in 2020.
Government incentives that support entry-level buyers with deposits as low as 5% may help some into the market, but they also concentrate demand at the affordable end, adding further competitive pressure to the very segments most constrained by limited supply.
Veljancevski said buyers need to look beyond headline price trends and focus on a realistic assessment of their finances.
"Prospective buyers should consult with a mortgage broker early in the process to understand their options. Getting a clear picture of your finances before you start house hunting can save a lot of time and stress,” he said.
Veljancevski also cautioned against complacency among existing borrowers.
"Some people are holding on, hoping price growth slows further and things get better, but the fundamentals around lending haven't changed," he said. "Plus, with the RBA having raised rates, borrowing costs have increased for many variable-rate borrowers, meaning repayments are higher than they may have budgeted for. It’s more important than ever to plan carefully and understand exactly what you can afford."
For brokers, the key message in 2026 is that softer price growth and ongoing RBA tightening can coexist – and that it is clients’ serviceability, shaped by rates, buffers, and living costs, that ultimately determines who can transact and who remains on the sidelines.
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