How lenders work out your borrowing power
Updated: 2 days ago
Checked 28 September 2026 · About 6 minutes
In brief
Lenders don't test your repayments at your loan rate. Banks add a buffer of at least 3 percentage points.
Your living costs are taken as the higher of what you declare and a benchmark for a household like yours.
Credit cards count at their full limit, even when the balance is nil.
Banks are limited in how much lending they can do at six times income or more, and each lender has its own policy. So two lenders can give very different answers.
Why online calculators disagree with lenders
Your borrowing capacity is an estimate of how much a lender may be prepared to lend, based on your finances and its own credit policy. A calculator gives that estimate from a few inputs. A lender looks at your full application.
The lender must also meet responsible lending rules: make reasonable inquiries, verify what you tell it, and not offer credit that is unsuitable for you. That is why the same income can support quite different loan amounts at different lenders.
The buffer lenders add
Australia's bank regulator, APRA, expects banks to assess a new home loan at a rate at least 3 percentage points above the rate you would actually pay. APRA reviews this setting regularly. When this article was checked, the buffer was 3 percentage points.
For example, a loan at 6.0% would be tested as if the rate were 9.0% (a hypothetical rate, not an offer). The buffer is there so the loan still works if rates rise or your circumstances change. It is also the main reason borrowing power falls when rates go up.
Your living expenses
Lenders ask what you spend, then compare it with a benchmark called the Household Expenditure Measure (HEM), published by the Melbourne Institute. APRA expects banks to use the higher of the two, scaled for your household size, location and income.
Three months of bank statements that match what you declare make this part of the application smoother.
Debts and credit limits
Every existing commitment reduces what you can borrow. That includes car loans, personal loans, HELP study debt, buy now pay later and other home loans.
Credit cards are assessed on the limit, not the balance. APRA's guidance gives an example of 3% of the limit per month, and some lenders use more. A $10,000 limit you never use can still count as about $300 a month.
Your household and the loan itself
The number of dependants, and how income and expenses are shared, also affect the result. Two applicants with the same combined income can borrow different amounts if their family commitments, debts or living costs differ.
The loan's structure matters too: the term, principal-and-interest or interest-only repayments, and whether the property is to live in or an investment. A longer term can lower the repayment, but it usually means paying more interest overall.
The six-times-income limit
Since 1 February 2026, APRA has limited banks and other authorised deposit-taking institutions to writing no more than 20% of their new owner-occupier lending, and 20% of new investor lending, at a debt-to-income ratio of six or more. Your debt-to-income ratio is your total debt divided by your gross income.
This is a limit on each bank's lending, not a hard cap on every borrower. Non-bank lenders are not regulated by APRA, so it does not apply to them. Owner-occupier bridging loans, and loans to build or buy a newly built home, are exempt. In practice, applications near six times income depend more on which lender you choose.
The most you can borrow is not the right budget
The largest amount a lender will consider is a ceiling, not a recommendation. A comfortable budget also leaves room for things a servicing model can't see: family plans, renovations, a change of job, maintenance and the emergency buffer you want to keep.
A better question than "What is the most I can borrow?" is "What loan size leaves us comfortable while still reaching the goal?"
What you can do before you apply
Reduce or close credit cards you don't need. The limit counts, not the balance.
Pay down or pay out small debts where it makes sense.
Check your living expenses against your bank statements, so what you declare matches.
Have your income evidence ready: payslips, and tax returns if you are self-employed.
Compare how different lenders treat overtime, bonuses, rental income and self-employed income.
Common questions
Does working out my borrowing capacity affect my credit score?
An initial conversation or calculation doesn't usually need a formal credit application. Whether a credit enquiry is made depends on the process, so ask before you go ahead.
Can paying off debt increase my borrowing capacity?
It can, because lower commitments improve servicing. The effect depends on the type of debt, any remaining limit and the lender's policy. Closing an unused card can matter as much as clearing its balance.
Should I borrow the maximum a lender offers?
Not automatically. The loan should suit your situation, your goals and the repayment you are comfortable with. Keeping a buffer for the unexpected can matter more than the largest possible approval.
Try the numbers
Use our Borrowing Capacity calculator for an indicative figure, then the Repayments calculator to see what the repayments look like. Our home loans page explains how Christian can help.
Talk it through
Sources
APRA, macroprudential settings unchanged, 28 May 2026
APRA, APG 223 Residential Mortgage Lending, 19 June 2025
APRA, limits on high debt-to-income lending, 27 November 2025
Melbourne Institute, Household Expenditure Measure, updated quarterly
ASIC, responsible lending
General information only. This article does not take into account your objectives, financial situation or needs. Your full financial situation and requirements must be considered before any offer or acceptance of a loan product. All lending is subject to the lender's assessment and criteria, and fees and charges apply. Figures and rules are correct as at the checked date shown and can change.
Avantgarde Financial Brokerage Pty Ltd, Corporate Credit Representative 580346, authorised under Australian Credit Licence 389328 held by Connective Credit Services Pty Ltd.
