Borrowing capacity in Australia is calculated from your income, living expenses (benchmarked against the HEM), existing debts and credit limits, dependants, deposit, and the lender's assessment rate — which includes a buffer of roughly 3 percentage points above the actual loan rate. Two lenders can offer meaningfully different maximum loan amounts for the exact same borrower because each applies its own serviceability policy.
The Core Inputs Lenders Use
- Gross income — Base salary, plus a discounted portion of overtime, bonuses, rental income or self-employed income, depending on the lender.
- Living expenses — Your declared expenses, tested against the Household Expenditure Measure (HEM), a benchmark minimum. Lenders use whichever figure is higher.
- Existing debts — Personal loans, car loans, HECS/HELP debt, and Buy Now Pay Later commitments.
- Credit card and other limits — Assessed on the full limit, not the balance owed, because you could draw on it at any time.
- Dependants — More dependants increases the assumed living expense floor.
- Deposit and loan amount — Affects the loan-to-value ratio (LVR) and whether LMI applies.
The APRA Serviceability Buffer
Australian lenders are required to test whether you could still afford repayments if interest rates rose. The current industry-standard buffer is approximately 3 percentage points above the actual loan rate. In practice, if your actual rate is X%, the lender assesses your ability to repay at roughly X% + 3%. This buffer is a key reason your "borrowing power" is meaningfully lower than what your take-home pay might suggest it should be — and it's designed to keep borrowers from being overextended if rates rise.
Worked Example (Illustrative Only)
| Factor | Effect on borrowing power |
|---|---|
| $10,000 unused credit card limit | Reduces borrowing capacity — often by tens of thousands of dollars, since it's assessed at ~3-3.8% of the limit as a notional monthly repayment |
| HECS/HELP debt | Reduces available surplus income via compulsory income-based repayments |
| Extra dependant | Increases the assumed minimum living expense floor |
| Larger deposit (lower LVR) | Can improve the rate offered and reduce or remove LMI, indirectly improving serviceability |
Figures vary by lender and change over time — this table illustrates direction of effect, not exact numbers for your situation.
How to Increase Your Borrowing Power
- Close or reduce the limit on credit cards and store cards you don't use.
- Pay down or consolidate existing personal loans and BNPL balances.
- Reduce discretionary spending in the 3-6 months before applying — lenders review recent bank statements.
- Consider a longer loan term to lower assessed monthly repayments (noting this increases total interest paid).
- Compare lenders — serviceability policy, HEM interpretation, and assessment rates differ meaningfully across the market.
Frequently Asked Questions
Related reading: First Home Buyer Guide 2026 · Self-Employed Home Loans · Borrowing Capacity Calculator