How much can I borrow for a home loan in Australia

Borrowing power is the maximum loan a lender is prepared to advance after applying its credit policy to a household's income, expenses and existing debts. It is not a measure of what a household can comfortably afford, and it is not a fixed number attached to a borrower. The same applicant can receive materially different answers from different institutions in the same week.

The calculation itself is not mysterious. Almost every Australian lender follows the same four-step structure, and the main regulatory settings that shape it are published by the Australian Prudential Regulation Authority. Understanding the structure explains why borrowing power moves so sharply when interest rates change, why a modest car loan can reduce a maximum loan by tens of thousands of dollars, and why a pre-approval from one bank says little about what another will do.

The four inputs behind every serviceability assessment

A serviceability assessment reduces a household to a single monthly figure: the surplus left after the lender's assumptions about income, living costs and other debts have been applied. That surplus is then converted into a loan amount using an interest rate higher than the one the borrower will actually pay.

1. Assessable income. Gross income, adjusted downwards for any component the lender regards as variable or uncertain, then reduced to a net figure after tax.
2. Living expenses. The higher of the borrower's declared expenses and a statistical benchmark.
3. Existing commitments. Repayments on other loans, plus a notional repayment on the full limit of every credit card and line of credit, whether or not the limit is used.
4. The assessment rate. The interest rate at which the new loan is tested, which must be at least three percentage points above the product rate.

The surplus is the first three items netted off against each other. The fourth converts that surplus into a maximum loan. Each is examined below.

How lenders count income

Lenders rarely use gross income at face value. Income is classified by how reliable it is expected to be, and less reliable categories are reduced, a practice usually described as shading.

Base salary for a permanent employee is generally accepted in full. Beyond that, treatment varies considerably between institutions, and the following patterns are common rather than universal:

• Overtime, bonuses and commission. Frequently accepted at between 50 and 100 per cent, depending on the industry and how long the income has been received. Essential services employees are often treated more generously than those in cyclical industries.
• Casual and contract income. Usually requires a minimum period in the role, commonly six to twelve months, and may be annualised from year to date figures rather than from a single payslip.
• Rental income. Commonly accepted at 70 to 80 per cent of gross rent, the reduction standing in for vacancy, management fees, rates and maintenance.
• Self-employed income. Normally assessed from two years of tax returns and financial statements, with certain non-cash or one-off expenses added back. The general approach is set out in the guide to home loans for self-employed borrowers.
• Government payments. Family Tax Benefit and similar payments may be counted in part, often only for children below a certain age, because the payment will cease.
• Investment income. Dividends and distributions are usually accepted only where they are demonstrably recurring.

Net income is then calculated by applying income tax and the Medicare levy. For a couple this matters more than it appears: two incomes are taxed separately, so a household earning $180,000 across two people retains more after tax than one person earning $180,000. A lender that models the couple correctly will arrive at a higher borrowing capacity than one that does not.

Living expenses and the Household Expenditure Measure

Every applicant declares their living expenses. Very few lenders accept the declaration without testing it. The usual test is a benchmark, most commonly the Household Expenditure Measure published by the Melbourne Institute of Applied Economic and Social Research, which estimates a household's spending on the basis of its size, composition and income.

The benchmark functions as a floor. Where declared expenses exceed the benchmark, the declared figure is used. Where they fall below it, the benchmark is used instead. A borrower therefore cannot improve a serviceability result simply by declaring implausibly low expenses, although declaring expenses that are unnecessarily high will reduce the result.

The Melbourne Institute describes the measure as the median spend on absolute basics plus the 25th percentile spend on discretionary basics, with absolute basics covering most food items, children's clothing, utilities, transport and communications. It is therefore deliberately conservative in its treatment of discretionary spending, on the basis that a household facing a mortgage can be expected to reduce some categories of expenditure. That reasoning was tested in court. In Australian Securities and Investments Commission v Westpac Banking Corporation [2020] FCAFC 111, the Full Court of the Federal Court dismissed ASIC's appeal by majority, with the judgment observing that the fact a consumer currently incurs a particular living expense does not necessarily mean that expense is not discretionary. ASIC announced in 2020 that it would not seek special leave to appeal.

The practical consequence for applicants is that the three months of transaction statements a lender requests will be read. Regular commitments that appear in those statements, including subscriptions, school fees, private health insurance and buy now pay later instalments, are commonly added to the expense figure even where the applicant omitted them.

Existing debts, credit card limits and buy now pay later

Existing commitments reduce the assessed surplus directly, and the treatment of revolving credit is the element that most often surprises applicants.

• Personal and car loans. The actual contracted repayment is deducted. A loan with a short remaining term is generally still counted in full unless it will be repaid before settlement.
• Credit cards and lines of credit. A notional monthly repayment is applied to the approved limit, not the balance. A common industry convention is around 3.8 per cent of the limit each month. A card with a $15,000 limit and no balance therefore reduces assessed surplus by roughly $570 a month.
• Buy now pay later. These arrangements are regulated as credit under the National Credit Code, and instalments visible in transaction statements are typically treated as commitments.
• HELP and HECS debts. Compulsory repayments are deducted from assessable income while the debt remains.
• Existing mortgages. Repayments on loans being retained are assessed at the buffered rate, not the current rate.

Because a credit card limit is assessed rather than the balance, reducing or closing unused limits before applying is one of the few actions that improves borrowing power immediately and at no cost.

The assessment rate and the three percentage point buffer

The final step converts the monthly surplus into a loan amount, and it uses an interest rate deliberately higher than the rate the borrower will pay. APRA requires authorised deposit-taking institutions to assess a new borrower's ability to meet repayments at an interest rate at least three percentage points above the loan product rate. APRA confirmed in its System Risk Outlook published on 21 May 2026 that the buffer remains at three percentage points, alongside a countercyclical capital buffer of one per cent of risk-weighted assets.

APRA describes the buffer as providing a contingency for rises in interest rates over the life of the loan and for unforeseen changes in a borrower's income or expenses. The effect on borrowing power is substantial. A loan offered at 6.00 per cent is tested at 9.00 per cent, which reduces the loan that a given surplus will support by roughly a quarter compared with testing at the actual rate.

The buffer also explains why borrowing power moves so quickly when the cash rate changes. Every movement in the product rate carries straight through to the assessment rate. The article on how Reserve Bank cash rate decisions affect loan repayments sets out that transmission in more detail, and the borrowing power calculator applies the buffer automatically.

Debt to income limits since February 2026

Serviceability is no longer the only constraint. On 27 November 2025 APRA announced a limit on high debt to income lending, effective from 1 February 2026. Authorised deposit-taking institutions may write no more than 20 per cent of new mortgage lending at a debt to income ratio of six times or more, and the limit applies separately to owner-occupier and investor lending. APRA stated that bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings are excluded.

The limit is a portfolio constraint rather than a prohibition. A lender may still write a loan above six times income within its own risk appetite, but it must manage the overall share. In practice this means that applicants at high multiples may find fewer lenders willing to proceed, and that a lender's appetite can change during a quarter as it approaches its internal threshold. The article on debt to income ratios and lending limits examines how the ratio is measured.

A worked example of a serviceability assessment

The following figures are illustrative only and use the simplified model behind this site's calculator. Individual lenders apply different shading, different benchmarks and different assessment floors, so a real assessment will differ.

Assume a couple with gross salaries of $95,000 and $85,000, two dependent children, declared living expenses of $4,500 a month, a car loan requiring $650 a month, and credit card limits totalling $15,000. The product rate is assumed at 6.00 per cent over a 30 year term.

Step	Amount
Combined net monthly income after tax and Medicare levy	$11,780
Less assessed living expenses	$4,500
Less car loan repayment	$650
Less notional credit card commitment at 3.8 per cent of $15,000	$570
Assessed monthly surplus	$6,060
Assessment rate (6.00 per cent plus the three point buffer)	9.00 per cent
Indicative maximum loan	$753,000
Actual repayment on that loan at 6.00 per cent	$4,515 a month

Three variations on the same household show how sensitive the result is:

• Repaying the car loan before applying raises the indicative maximum to about $833,000, an increase of roughly $80,000 for a commitment of $650 a month.
• Closing the credit cards raises it to about $823,000, an increase of roughly $70,000, even though the cards carry no balance.
• A product rate of 5.00 per cent rather than 6.00 per cent raises it to about $825,000, an increase of roughly $72,000.

At the $753,000 result, the household's debt to income ratio on the mortgage alone is about 4.2 times gross income, which sits comfortably below the six times threshold that APRA's limit targets.

Why two lenders produce different numbers

Credit policy is one of the main ways lenders compete, and the differences compound. Two institutions assessing identical applicants may differ on:

• the proportion of overtime, bonus, commission or rental income accepted;
• the expense benchmark used and how declared expenses are verified;
• the notional rate applied to credit card limits;
• whether negative gearing benefits on an existing investment property are included;
• the minimum assessment rate applied as a floor, which binds when product rates are low;
• the treatment of HELP debts close to being repaid;
• how close the lender currently sits to its internal debt to income threshold.

Differences of 15 to 20 per cent in maximum loan between mainstream lenders are ordinary. Non-bank lenders, which are not authorised deposit-taking institutions and so are not directly bound by APRA's buffer, may apply different settings again, although they are still subject to responsible lending obligations under the National Consumer Credit Protection Act 2009. Further background is available in the guide to Australian lenders.

What changes borrowing power fastest

Ranked by the effect per unit of effort, the following generally move the number most:

1. Reducing or closing credit card and line of credit limits. Immediate, and worth roughly $4 to $5 of borrowing capacity for every dollar of limit removed in the example above.
2. Clearing short term debt. Paying out a car or personal loan removes the whole assessed repayment.
3. Extending the loan term. A 30 year term supports a larger loan than a 25 year term, at the cost of more total interest.
4. Applying with a lender whose policy suits the income type. A household with substantial overtime or commission income gains most here.
5. Reducing genuine discretionary spending, evidenced over three months. Slower, because statements must show the change.

Adding a borrower changes the result in both directions. A second income increases assessable income but also raises the expense benchmark for the household, so the net gain is smaller than the additional income alone suggests.

Borrowing power is a ceiling, not a budget

A serviceability assessment is designed to establish that a loan is not unsuitable. It is not designed to produce a comfortable household budget. The buffer protects the lender against rate rises; it does not fund school fees, a period of parental leave, or the maintenance a first home unexpectedly requires.

The assessed surplus in the worked example is $6,060 a month against an actual repayment of $4,515. The apparent margin of $1,545 is not free income: it exists because the household's real living expenses were benchmarked, and because the buffer assumes a rate the borrower is not currently paying. Borrowing the full assessed amount converts that margin into risk.

A more useful exercise is to set the repayment first and derive the loan from it. The mortgage repayment calculator converts a loan into a repayment, and the property affordability calculator works from a deposit and a sustainable repayment towards a purchase price. Modelling the repayment at two or three percentage points above the current rate, which is what the lender is doing, gives a realistic view of what a rate rise would mean.

Preparing for a serviceability assessment

Lenders verify what applicants declare. The documents typically requested are payslips covering recent pay periods, the most recent tax return and notice of assessment for variable or self-employed income, three months of transaction and credit card statements, and statements for every existing loan. Preparation that helps includes:

• reducing credit card limits in writing and retaining confirmation;
• allowing at least three months of clean transaction history, without dishonours or overdrawn accounts;
• avoiding new credit applications, each of which is recorded on a credit report for five years, as described in the guide to credit scores and home loan applications;
• documenting any income that is not obvious from a payslip;
• establishing the deposit position before the assessment, using the deposit calculator and, where the deposit is below 20 per cent, the LMI calculator.

A borrowing power estimate produced by any calculator, including this one, is a model of a lender's policy rather than a credit decision. A formal pre-approval, discussed in the guide to the home loan pre-approval process, is the point at which a lender applies its own policy to verified documents. Borrowers who would like that work done across several lenders may request a free assessment from an accredited broker.