“How much can I borrow?” is usually the first question people ask when they start thinking about a home loan. The honest answer is: it depends on the lender. Each bank and non-bank lender runs your details through its own calculator, and the results can vary more than most people expect. Understanding what goes into that calculation helps you plan, avoid surprises and, in many cases, borrow more comfortably.
The big picture: can you afford the repayments?
Lenders are not simply multiplying your salary by a number. Under Australia’s responsible lending rules, they need to be satisfied you can meet the repayments without substantial hardship. To do that, they compare the money coming in with the money going out, then test whether there is enough left over to cover the new loan at a higher, “stress-tested” interest rate. The gap between income and commitments is often called your surplus. The bigger the surplus, the more you can borrow.
For a quick estimate, try our borrowing power calculator. Keep in mind it is a guide only; a lender’s assessment uses far more detail.
Income: what lenders count and what they discount
Not all income is treated equally. Lenders generally accept stable, ongoing income in full and are more cautious with anything that could change.
- Base salary for permanent employees is usually counted in full once any probation period is complete.
- Overtime, bonuses, allowances and commissions may be counted in part or averaged over a period, and some lenders want a history of receiving them.
- Casual and contract income is often accepted after a minimum time in the role or industry.
- Self-employed income is usually assessed using recent tax returns and financial statements. Some specialist lenders offer alternative documentation options.
- Rental income from an investment property is typically “shaded”, meaning only a portion is counted to allow for vacancies and costs.
- Government benefits such as family payments may be counted by some lenders, depending on how long they are expected to continue.
Living expenses and the HEM benchmark
You will be asked to list your regular living costs: groceries, utilities, transport, insurance, childcare, school fees, subscriptions, entertainment and so on. Lenders then compare your figure with a benchmark called the Household Expenditure Measure (HEM).
HEM estimates typical spending for households of a similar size, income and location. If your declared expenses are lower than the benchmark, most lenders will use the benchmark instead. If your expenses are higher, they will use your actual figure. Either way, the lender works with whichever number is more conservative.
Lenders will also check your bank statements. If your statements show far more spending than you declared, expect questions. Being accurate from the start saves time and protects your credibility with the credit assessor.
Existing debts and credit card limits
Every ongoing commitment reduces the surplus available for a new loan. Lenders will include:
- Car loans and personal loans
- Other home or investment loans
- HECS-HELP or other study debts, which reduce your take-home pay once your income is above the repayment threshold
- Buy now, pay later accounts
- Child support or other regular obligations
Credit cards deserve special mention. Lenders assess cards on the full limit, not the balance you owe. Even if you clear your card every month, a lender assumes you could run it up to the limit and calculates a notional monthly repayment on that amount. A card you barely use can still noticeably reduce your borrowing power.
The serviceability buffer
The Australian Prudential Regulation Authority (APRA), which supervises banks, expects lenders to test whether you could still afford your repayments if interest rates rose. In practice, lenders it supervises assess your loan at least 3 percentage points above the actual rate you would pay, or at their own minimum “floor” rate if that is higher.
This buffer is a big reason borrowing power has become tighter in recent years. It protects you against future rate rises, but it also means the loan you are approved for is based on a repayment higher than your actual starting repayment. Some non-bank lenders sit outside APRA’s direct supervision and may apply their own buffer policies, although most still test repayments at a higher rate.
Lenders may also look at your overall debt-to-income ratio, meaning your total debts compared with your gross income, and may be more cautious once that ratio gets high.
Dependants and household size
Children and other dependants increase expected living costs, so lenders apply higher expense assumptions and the HEM benchmark rises with household size. Two applicants with identical incomes can have quite different borrowing power if one supports a family of five and the other lives alone. Be upfront about dependants; it is part of the assessment and lenders will check.
Why lenders give different answers
Because every lender sets its own policies, the same applicant can receive noticeably different results. Here is where the differences usually come from:
| Factor | How lenders can differ |
|---|---|
| Bonus and overtime | Some count a large share; others count little or need a longer history |
| Rental income | The portion counted varies from lender to lender |
| Living expenses | Different versions of benchmarks and different expense categories |
| Existing debts | Different assumptions for credit card limits and other loans |
| Assessment rate | Buffers and floor rates are set by each lender within regulatory expectations |
| Self-employed income | Some average two years; others may use the most recent year |
This is one of the practical advantages of working with a broker. We can compare how a range of lenders are likely to view your situation before you apply, rather than learning by trial and error. Read more in our guide on using a mortgage broker versus going direct to a bank.
How to improve your borrowing power
- Reduce or close credit cards. Lowering limits, or closing cards you do not need, can make a real difference.
- Pay down small debts. Clearing a car loan or personal loan frees up monthly cash flow in the lender’s calculation.
- Trim discretionary spending. Lenders read your statements, so a few months of tidy spending helps.
- Build a stable employment history. Finishing probation or completing a full financial year of self-employment can open more options.
- Consider a longer loan term. A 30-year term lowers the assessed repayment compared with a shorter term, though you pay more interest over time.
- Apply jointly. Adding a partner’s income can help, but their debts and expenses are included too.
- Choose the right lender. Matching your circumstances to a lender whose policies suit them is often the single biggest lever.
Get a clearer answer
A calculator gives you a ballpark figure; a proper assessment tells you where you really stand and which lenders suit you best. If you are planning to buy, build or refinance, book a free chat with our team and we will walk through your numbers with you.
Quick answers
Why does my online calculator result differ from what the bank says?
Online calculators use simplified assumptions. A lender's assessment looks at your actual payslips, bank statements, credit card limits, dependants and living expenses, then applies its own serviceability buffer and benchmarks. Each lender also treats income types such as bonuses or rental income differently, so the final figure can be higher or lower than a quick online estimate.
Does closing a credit card really increase my borrowing power?
Often, yes. Lenders assess credit cards on the full limit rather than the balance, assuming you could draw the whole amount. That notional repayment reduces the surplus available for a home loan. Reducing a limit or closing a card you rarely use can lift your borrowing power, and it is best done before you apply so the change shows on your credit file.
What is the HEM benchmark?
The Household Expenditure Measure is a benchmark of typical living costs for households of a similar size, income and location. Lenders compare it with the living expenses you declare and generally use whichever figure is higher. It helps lenders check that your stated spending is realistic, so accurate, well-documented expenses make your application smoother.