What Affects Borrowing Capacity in Australia?

Your borrowing capacity is determined by your net income, your living expenses, your existing debts, and the specific assessment policies of the lender you apply with. It is essentially a calculation of how much you can afford to repay each month after meeting your other obligations.

How lenders assess your capacity

Lenders use a serviceability calculation to ensure you can afford the loan. They take your verifiable income, subtract your taxes, subtract your declared living expenses (or a benchmark figure, whichever is higher), and subtract your commitments to existing debts. The remaining surplus dictates how much they will lend you.

Illustrative example

Illustrative example: Consider an applicant earning $100,000 per year. Lender A might assess their borrowing capacity at $550,000 because they heavily discount bonus income. Lender B might assess it at $620,000 because their policy accepts 100% of the applicant's regular overtime. The applicant's actual financial situation hasn't changed, only the lender's policy.

What may change the outcome

Lenders must apply a "buffer" to your interest rate—typically 3.00% above the actual loan rate—to ensure you could still afford repayments if rates rise. Changes to this buffer, your credit card limits, whether you have dependents, and how a lender treats specific income types (like rental income or allowances) will all change the outcome.

Common misunderstandings

Many people assume that two lenders will offer the same borrowing capacity. In reality, borrowing capacity can vary by tens or even hundreds of thousands of dollars between lenders due to differing internal policies on income shading and expense benchmarking.

When a personal review may help

If you have multiple income sources, existing investment properties, or personal loans, an online calculator can only provide a rough guess. A broker can run your exact numbers through several lenders' actual serviceability calculators to find the most favorable assessment.

Next step

Use our Borrowing Capacity Calculator for an indicative estimate, then request a personal review to get an accurate figure.

This article provides general information only and does not take into account your objectives, financial situation or needs. It does not constitute personal credit, financial, tax or legal advice. Lending outcomes depend on individual circumstances, lender policy and assessment.

Have questions about your situation?

Every home loan scenario is unique. Speak directly with Cameron or Matthew to get clear answers.