With Interest Rates Rising in 2026, Should I Keep Saving for a 20% Deposit or Buy Sooner With 5%?
Every month you spend saving for a 20% deposit, you’re also watching what that deposit needs to buy. The trade-off isn’t just about the deposit — it’s about where prices are when you finally reach the target.
This is the defining question for first home buyers in 2026. Rising rates have made repayments higher than they were two years ago. Property prices may rise or fall depending on market conditions. The ‘wait and save’ strategy has a cost that most people don’t fully price in.
The Case for Buying Sooner With 5%
With the government guarantee removing LMI, the main financial argument against entering at 5% has been resolved for eligible buyers. You start building equity immediately. You lock in a purchase price now rather than chasing it. And two to three years of 5%-entry repayments often cost less than two to three more years of rent plus lost price growth.
The Case for Continuing to Save
At a 20% deposit, you’re borrowing less — which means lower repayments and more buffer if rates continue to rise. With a 3% serviceability buffer already applied, lenders are stress-testing your application at a significantly elevated rate. Some buyers find the 5% entry doesn’t reach the property they need.
What Rising Rates Actually Do to This Decision
Higher rates reduce your borrowing capacity, which affects both strategies. Whether you enter at 5% or 20%, the approved loan amount is likely lower in 2026 than it would have been in 2022. That means the deposit percentage matters less than whether the approved amount actually reaches the property you’re targeting.
The Questions to Answer Before Deciding
- What is my maximum borrowing capacity right now across multiple lenders?
- Can that capacity reach the property type I actually need?
- If I wait 18 months, what will that same property likely cost?
- Can I comfortably service the loan if rates rise by a further 1–2%?
You may wish to speak with a licensed mortgage broker to assess your personal circumstances.
This is general information only and does not constitute financial advice. Both strategies carry risk. Speak with a licensed mortgage broker before making any decision. All loans are subject to lender approval.
Sources: RBA, Cash Rate Target 2026; Housing Australia, First Home Guarantee 2025–26; CoreLogic Home Value Index 2025; APRA Serviceability Buffer Guidance 2023.
