It’s no surprise that recent interest rate hikes are impacting the borrowing power of buyers. But exactly how much have the ongoing cash rate increases put a dent in our capacity to borrow when it comes to shopping for a new home?

Mortgage broker and Director at ACT Finance Solutions, Fiona Milligan, said after six consecutive interest rate rises since May, it was now impossible for house hunters to afford the same property on the same budget they might have had six months ago.

Fiona has estimated a .25 percentage point rise has the potential to impact an individual’s borrowing power by around $25,000 and a 0.5 percentage point increase would likely decrease loan capacity by $50,000.

The figures come as the Reserve Bank of Australia lifted rates to 2.6% in October, taking the cash rate to its highest level since July 2013 and surpassing the decade average before the COVID pandemic, which was 2.55%.

Fiona said while the speculation and media rhetoric surrounding the interest rate hikes had been rampant, different sectors of the market were responding differently to the rate rises.

“It’s interesting. The reaction from different sections of the market have been polar opposites,” she said.

“First homebuyers are bit more concerned about the interest rate rises because they have only ever encountered low rates, whereas older generations aren’t so worried because they’ve seen rates much higher in the past and have weathered them before.”

CoreLogic Head of Research Eliza Owen said the current rate tightening was now the fastest since the early 1990s.

Eliza said assuming the latest cash rate rise was passed on to mortgage rates in full, the average variable mortgage rate for a new owner-occupier loan could rise to around 4.76%, up from 2.4% in April.

For a new principal and interest loan of $750,000, this would take monthly mortgage repayments from $2,925 per month in April to $3,917, she said.

But Fiona said the RBA’s decision in early October to lift the rates by just 25 basis points, rather than the full 50, had led to a renewed level of confidence and hope the market was stabilising.

“After the Global Financial Criss, people became frantic and there was really crazy buying with people making some unbelievable offers,” she said.

“Whereas now it’s a bit more normal. People are still buying but panic-buying is gone and people are being a bit more considered in their decision-making about new purchases.”

While further rate increases have been mooted, Fiona expected there might only be a rise of another 0.5 percentage points before the market stabilises.

“The rate only went up 0.25 points recently so that’s a good sign, but I would be surprised if it went up another 0.5. In my opinion that would be the peak, unless something crazy happens in the world. These are uncertain times and they have been for a while, so I guess that’s not out of the realm of possibility.”