Max Crowe, 25, settled on a two-bedroom apartment in Newcastle last week with a simple calculation running through his head. If he didn't act before the Reserve Bank's meeting today, his pre-approval would expire and his borrowing power would shrink further. Now or never, he figured.
Crowe's urgency reflects a real constraint. Loan pre-approvals last roughly 90 days and are conditional on your financial situation remaining stable. When rates rise, banks reassess whether you can service the debt. A rate increase doesn't just make future payments higher; it can knock you out of the market entirely if you're already stretched.
The RBA is widely expected to raise the cash rate by 25 basis points today, bringing it to 4.1 per cent. A Reuters poll conducted March 10-12 showed that 23 of 30 economists expect the RBA to lift the cash rate by another 25 basis points to 4.10 per cent at the next scheduled meeting. More significantly, major banks now expect a second hike in May. The RBA raised rates to 3.85% on March 15, with market consensus expecting further hikes to 4.35% by year-end.
For first-home buyers already operating near the edge of their serviceability, these aren't academic concerns. If the RBA hikes rates in March and May 2026, an average mortgage holder's monthly repayments could rise by $91. Double that if more hikes follow. The cumulative effect squeezes household budgets that are already tight.
Crowe had secured pre-approval for a loan in Sydney but discovered he could only stretch to a studio apartment in his home city. Using the government's 5 per cent deposit scheme, he found a more liveable option in Newcastle, about 160 kilometres from Sydney. But the clock was ticking. In Sydney, where the median house price is well over $1 million, the caps can exclude large parts of the market.
Banks reserve the right to reassess loans if your circumstances change, and interest rate rises count as a material change. A surge in buyers, a rise in borrowing power, thanks to the three cash rate cuts in 2025, and a government proactively encouraging Australians to borrow with as little as 5% deposit, can only mean higher prices and more debt. While the federal scheme makes it easier for many first-home buyers to get on the ladder with a small deposit, it certainly doesn't mean the commitment and responsibility of repayments is any easier, particularly now we've had a U-turn back to interest rate hikes.
Finance industry leaders warn that the risk is real, particularly for buyers operating on the absolute edge of their approved amount. Depending on your state, first home buyers could access $40,000 to $75,000 or more in combined benefits through grants, stamp duty concessions, and the First Home Guarantee scheme. These supports soften the immediate impact of high prices, but they don't make repayments magically affordable when rates are climbing.
The real risk is that the first half of 2026 becomes a window of opportunity that closes faster than many young buyers realise. Pre-approvals don't wait. Neither do rate cycles. And for those already priced out of Sydney and Melbourne, regional cities offer breathing room, though prices there are rising fast as displaced buyers migrate outward looking for space and affordability.
The next few months will tell whether government deposit schemes can sustain demand in a rising rate environment, or whether the combination of high prices and higher borrowing costs simply pushes first-home buyers further down the track to financial stress.