The cash rate is 1.25 percentage points higher than it was at the start of the year. For jobs where finance is not yet final, that gap is now around 10 per cent of borrowing power.

The rate rise that matters most to a signed job is not always the one on the repayment schedule. It is the one that lands between the contract and the finance.

Run a simple model. A household that could borrow $700,000 in January, with the same income and the same living costs, would be assessed for about $627,500 today. That is a gap of roughly $72,500, before anyone has changed a single line in the plans.

Five rises have taken the cash rate from 3.60 to 4.85 per cent

The Reserve Bank lifted the cash rate to 4.85 per cent on 3 November. It was the fifth rise of 2026, after increases in February, March, May and September, and the highest setting since 2008.

The major banks moved the next day. Commonwealth Bank, Westpac, NAB and ANZ all announced on 4 November that variable home loan rates will rise by 0.25 percentage points from Friday 13 November.

Every new assessment adds 3 percentage points to the loan rate

Borrowing capacity is not tested at the rate a client will actually pay. Banks regulated by APRA must test new borrowers at a rate at least 3 percentage points above the loan product rate. APRA confirmed on 28 May that the buffer stays at that level.

APRA also kept its debt to income limit in place. Banks can write up to 20 per cent of new owner occupied and investment loans at a debt to income ratio of six times or more.

So the question for a builder is not only what rates are. It is when the client’s loan was last assessed, and whether it will be assessed again before the job is finished.

The same household now qualifies for about 10 per cent less

Here is how we ran the numbers. Take a 30 year principal and interest loan at a rate of 5.75 per cent. With the buffer, it is assessed at 8.75 per cent. Set the household’s spare monthly income so that it supports a $700,000 loan at that assessment rate.

Now lift the loan rate by the full 1.25 points to 7.00 per cent, so the assessment rate becomes 10.00 per cent. Hold income and living costs exactly where they were.

The maximum loan falls to about $627,500. That is roughly 10.4 per cent less.

The proportion holds across loan sizes. A household assessed for $500,000 in January comes out at about $448,000. One assessed for $900,000 comes out at about $807,000.

Nothing about the client has changed. The house has not changed. The ceiling on what the bank will lend has moved down by about $72,500.

The model is deliberately simple. Lenders apply their own floor rates, expense benchmarks and policies, and actual product rates vary. But the direction and rough scale hold for any client whose finance is assessed now rather than in January.

The finance date in the contract is where the clock starts

Domestic contracts often give the owner a window to show they can pay. Where that window comes from differs by state.

In Queensland, the QBCC new home construction contract makes the contract subject to the owner giving written evidence of their capacity to pay by the Finance Date. If no date is set, it falls 10 business days after the contract date. If the contractor is not satisfied, it can end the contract within 5 business days after that date.

New South Wales has a similar clause in the Building Commission NSW home building contract for work over $20,000. The contractor can ask in writing for satisfactory evidence of the owner’s capacity to pay the contract price, and for any variations agreed after signing. If it is not provided within 10 business days, the contractor can suspend the work or move to end the contract.

Western Australia’s Home Building Contracts Act 1991 allows contracts to include a similar mechanism. A contract can entitle the builder, by written notice before work starts, to require written evidence that the owner can pay the contract price. The same applies before work on a variation starts. If the owner does not satisfy the builder within 10 working days, the builder can terminate the contract or the variation within a further 10 working days.

Elsewhere, the legislation is silent. The home building contract laws in Victoria, South Australia and Tasmania contain no equivalent provision, and neither the ACT nor the Northern Territory requires one. It comes down to the contract form the builder uses. Consumer Affairs Victoria notes that a contract may state whether the owner had to supply financial approval or evidence of financial capacity before the project starts.

These provisions protect the builder at the start. They do not cover what happens later. A conditional pre approval carries an expiry date set by the lender. Where a job is delayed by approvals or design changes and the client’s pre approval lapses, the renewed application is assessed at today’s rate plus the buffer.

Variations reopen the finance on a signed job

Construction lenders want the money to complete the house in place before they pay a dollar.

The Commonwealth Bank construction loan guide says a borrower’s own contribution must be used first, before any progress payments come from the loan. It asks for variations to be sent through promptly.

What are funds to complete?

Funds to complete is the money a construction lender wants to see in place to finish the build. It is the difference between the full cost to build, including approved variations, and the approved loan. Lenders generally require it to be paid first, before progress payments are released from the loan.

The NAB building guide goes further. Variations must be approved by NAB before they are agreed with the builder. Payments are made only up to the valuation for each stage, and the borrower pays any cost overrun from their own funds. Drawdowns can be suspended until the overrun is met.

A client who borrowed close to their limit in January has two ways to fund a variation. Cash, or a loan increase. The loan increase is a new assessment, at the new rate, with the 3 point buffer on top. On our model, that client now has no headroom at all.

That lands squarely on cash flow for builders. A stalled drawdown is a progress claim that does not get paid on time.

Interest during the build climbs stage by stage

Construction loans charge interest on what has been drawn, not on the full amount. The Commonwealth Bank guide describes monthly interest payments on any drawn loan amount while the loan is progressively drawn.

That means each rise bites harder later in the job. On a loan rate of 5.75 per cent, $350,000 drawn costs about $1,677 a month in interest. At 7.00 per cent, it is about $2,042. At $560,000 drawn, the monthly interest goes from about $2,683 to about $3,267.

For a client also carrying rent or an existing mortgage, that extra $580 a month arrives at lockup and fixing, which is when variations and selections tend to come up too.

We looked at how a construction loan feels each stage in our piece on what the latest rise does to jobs already signed.

THE GOOD BUILDER TAKE

The squeeze is rarely visible at contract signing. It shows up later, when a job slips, a pre approval runs out, or a client asks for a better kitchen. The builders who see it coming are the ones who know where each client’s finance actually sits, not just that they had it.

Frequently asked questions

Related articles

• Four Rate Rises in 2026. What the Latest One Does to Jobs Already Signed
• RBA Lifts Rates to 4.85 and Forecasts Home Building to Shrink Through 2027 and 2028
• Lending to Build a New Home Rose 17 Per Cent Through Three Rate Rises
• Australian Construction Industry Trends Guide

Last updated 10 November 2026. Rates: RBA, 3 November 2026; lender announcements, 4 November 2026. Borrowing capacity figures are our own illustrative modelling, not lender quotes.

General Information Only: This article provides general information only and does not constitute legal, financial or professional advice. Lending policies, contract terms and legislation vary by lender and jurisdiction. Seek advice specific to your circumstances.

Author: TGB Editorial