Two borrowers with the same salary can walk away with very different maximum loan sizes from the same lender — and wildly different figures across lenders. Borrowing power is not a single number; it is the output of a calculation that combines income, living expenses, existing debts and a mandatory stress-test buffer. Understanding each component helps explain both why the number lands where it does and which factors can move it. All figures in this article are indicative as at June 2026. Check the current position with your lender and the relevant regulator.
What Borrowing Power Means
Borrowing power — sometimes called borrowing capacity — is the maximum loan amount a lender is willing to approve based on its assessment of a borrower's ability to meet repayments without financial hardship. It is not a fixed ceiling set by one authority. Every lender runs its own serviceability model and each model produces a different result for the same borrower.
The calculation works backwards: lenders start with net income, subtract assessed living expenses and existing debt repayments, and then calculate what loan size the remaining surplus can support — at the stressed rate, not the actual rate. A higher surplus supports a larger loan. A lower surplus constrains it.
How Lenders Assess Income
Lenders do not simply take gross salary at face value. Each income type is assessed differently, and the treatment varies between lenders.
Base salary
Permanent base salary from a standard employer is typically accepted in full (100%) because it is reliable and contractually fixed. Lenders commonly require two to three recent payslips plus a letter of employment or recent group certificate. For self-employed borrowers, most lenders require two years of tax returns and assess income on the lower of the two years or an average — some lenders also apply add-backs for non-cash deductions.
Overtime and bonus income
Variable pay — overtime, shift allowances, commissions and annual bonuses — is treated more cautiously. Many lenders shade variable income to 50% to 80% of its average value over the prior one or two years. Some lenders accept 100% of overtime where it has been consistently earned; others exclude it entirely unless it is a contractual component of the role. The treatment matters: a borrower earning a $30,000 annual bonus could see borrowing power move significantly depending on how the lender handles it.
Rental income
Rental income from investment properties is almost universally subject to a haircut. Many lenders accept 70% to 80% of gross rental income to account for vacancies, maintenance and management costs; some apply a net rental income figure from the tax return. Lenders also count the investment property loan repayment as a liability, so net rental yield rather than gross rental yield is what improves serviceability.
Other income types
Government benefits, parental leave pay, child support and dividends from trusts or companies are each treated differently across lenders — some accept them in full, some shade them, some exclude them entirely. Lenders commonly apply stricter criteria to income that is not guaranteed by an employer contract or legislation.
Living Expenses and the HEM Benchmark
After assessing income, lenders assess expenses. They do this in one of two ways: they use the borrower's declared living expenses or a statistical benchmark called the Household Expenditure Measure (HEM), whichever is higher.
The HEM is a publicly available measure produced by the Melbourne Institute. It sets a minimum living cost estimate based on household composition, income level and location. Because many borrowers understate expenses in loan applications, lenders are required to use the higher of HEM or declared expenses rather than accepting low figures at face value — a rule reinforced by APRA and ASIC guidance since the Banking Royal Commission.
In practice, this means a borrower who declares very low living expenses will find their lender substitutes the relevant HEM figure, which may be substantially higher. Borrowers whose actual and documented expenses genuinely exceed HEM (for example, those with private school fees or significant medical costs) will have those higher figures used instead, reducing their borrowing power further.
The APRA Serviceability Buffer
The most significant single factor in Australian borrowing power calculations is the serviceability buffer set by APRA (the Australian Prudential Regulation Authority). As at June 2026, lenders are required to assess whether a borrower can afford repayments at a rate at least 3 percentage points above the actual rate being offered. This requirement has been in place since November 2021, when APRA lifted it from 2.5 percentage points, and APRA has maintained it at this level through its subsequent macroprudential reviews. See the current position at apra.gov.au.
In practical terms: if a lender offers a rate of 6% on a variable loan, the repayment capacity test is run at 9%. The borrower must demonstrate surplus income sufficient to service the loan at the higher rate. This single mechanism reduces maximum loan sizes materially compared to what a repayment-only calculation at the actual rate would produce.
The buffer applies to all lenders regulated by APRA — major banks, regional banks, mutual banks and credit unions — and most non-bank lenders adopt it by convention. Lenders can set a higher buffer but may not set a lower one.
Existing Debts and Credit Card Limits
Every existing debt reduces borrowing power because it reduces the surplus income available to service the new loan. Lenders assess all existing commitments, including home loans, car loans, personal loans, BNPL accounts and credit cards.
Credit cards carry a particular nuance: lenders commonly assess the repayment obligation on the full credit limit, not the current balance. Many lenders calculate a minimum monthly repayment of 2% to 3.5% of the total credit limit, regardless of whether the card is fully paid off each month or holds no balance at all. A borrower with $20,000 in unused credit card limits may find their assessed monthly liability increased by $400 to $700 per month, reducing the loan they can support accordingly.
Closing or reducing unused credit card limits before applying is one of the most direct ways to improve the borrowing power outcome.
HECS-HELP Repayments
Compulsory HECS-HELP student loan repayments are treated as an ongoing liability. The ATO calculates repayment amounts based on income using a sliding scale of repayment rates — these rates and income thresholds are adjusted annually. Check the current rates at ato.gov.au.
Lenders include the applicable compulsory repayment in their expense calculation. This effectively reduces net income available for loan repayments. For higher-income borrowers with substantial study debt, the impact can be meaningful — sometimes equivalent to the effect of a moderately sized personal loan in terms of how it constrains borrowing power.
Debt-to-Income Ratios
In addition to the standard serviceability test, many lenders apply a debt-to-income (DTI) ratio cap. The DTI is the ratio of total debt (existing plus proposed) to gross annual income. As at June 2026, APRA's macroprudential framework sets a limit on the share of new lending at high DTIs — lenders are permitted to lend up to 20% of new owner-occupied and investment loans at a DTI of six times or greater, with higher-DTI lending above that threshold requiring additional credit scrutiny. See the APRA macroprudential settings at apra.gov.au.
In practice, many lenders apply internal DTI guidance well below the regulatory maximum. Some set soft limits at 6× or even 5×; others treat DTI as one factor among many. Borrowers with high incomes but also high property portfolios may find DTI is the binding constraint rather than the serviceability calculation.
Why Different Lenders Produce Different Numbers
The regulatory floor is the same for all APRA-regulated lenders, but every lender applies discretionary overlays on top of it. The table below illustrates the main variables where lender policies diverge:
| Factor | Conservative end | More flexible end |
|---|---|---|
| Overtime / bonus income | 50% of two-year average, or excluded | 100% if consistently earned |
| Rental income | 70% of gross rent | 80–90% of net rental from tax return |
| Credit card liability | 3–3.5% of total limit per month | 2% of total limit per month |
| Living expenses | HEM applied to all borrowers regardless of declared expenses | Declared expenses used where evidenced and exceed HEM |
| Self-employment income | Lower of two-year ATO income, no add-backs | Average of two years with standard add-backs |
| Internal DTI cap | 5× gross income | 7–8× with additional scrutiny |
The same borrower can legitimately receive estimates varying by a substantial amount across lenders, purely because of these policy differences. A borrower who earns significant overtime income, for example, will fare much better with a lender that accepts 100% of verified overtime than one that excludes it entirely.
How to Lift Borrowing Power Legitimately
Several steps are within a borrower's control before an application. These are common actions lenders observe — not advice on what any borrower should do, as individual circumstances vary.
- Close or reduce unused credit cards. Reducing total credit limits directly reduces the assessed monthly liability and can improve borrowing power meaningfully. Many lenders allow 30 to 90 days for credit file updates to reflect closures.
- Pay down or consolidate short-term debts. Personal loans and BNPL with higher minimum monthly repayments reduce surplus income. Consolidating multiple commitments into a single lower-rate facility with a lower minimum repayment can improve the surplus figure.
- Understand the term trade-off. A longer loan term reduces the minimum repayment used in the serviceability calculation and can increase the maximum borrowing amount. The trade-off is a higher total interest cost over the life of the loan.
- Document variable income thoroughly. Lenders that shade variable income do so partly because it is hard to verify. Payslips showing consistent overtime over two years, employer letters confirming ongoing allowances and bank statements all support a higher income assessment.
- Compare lenders with favourable policies for the income type. A borrower who earns primarily from rental income or self-employment will find the spread across lenders more significant than a standard PAYG employee.
Get an Indicative Estimate
The free Borrowing Power tool at lenderbridge.com.au/borrowing-power provides an indicative estimate based on inputs including income, expenses and existing debts. The estimate is indicative only — each lender's calculator and credit policy differs, and a lender's assessment on an actual application will reflect their specific policies, the loan product and the full application details.
Frequently Asked Questions
What is the APRA serviceability buffer and how does it affect borrowing power?
The APRA serviceability buffer is a stress-test margin that lenders must apply when assessing home loan applications. As at June 2026, lenders are required to assess repayment capacity at a rate at least 3 percentage points above the actual loan rate being offered. This buffer has been at this level since November 2021 and has been maintained through APRA's macroprudential reviews. It means a borrower applying for a loan at 6% is assessed as if paying 9%, which materially reduces the maximum loan size most lenders will approve. Check the official position at apra.gov.au.
Why do different lenders give different borrowing power estimates for the same borrower?
Each lender applies its own policies on top of the regulatory minimum requirements. Key variables include how they shade overtime and bonus income, whether they use the Household Expenditure Measure or declared expenses, how they treat rental income (many apply a haircut of 20–30%), what credit card limit they factor (many treat the full limit, not just the balance) and their internal debt-to-income appetite. The same borrower can receive estimates varying by tens or even hundreds of thousands of dollars across lenders.
How do HECS-HELP repayments affect borrowing power?
Lenders treat compulsory HECS-HELP repayments as an ongoing liability that reduces the income available to service a mortgage. The repayment is calculated on income using the ATO's repayment rate schedule. For higher income earners with substantial study debt, this can reduce borrowing power by a meaningful amount. Check the current repayment thresholds and rates at ato.gov.au.
What are the most effective ways to increase borrowing power before applying?
Lenders commonly see borrowing power improve when applicants close unused credit cards (since lenders count the full limit, not just the balance), consolidate multiple debts into a single lower-payment facility, reduce BNPL and personal loan balances, and extend the proposed loan term (though a longer term increases total interest paid). Switching to a lender with more favourable income-shading policies for a specific income type can also make a substantial difference.
General information only, not credit assistance or financial product advice. LenderBridge connects borrowers and lenders; it does not advise or recommend. Check figures with your lender and the official source.