How much can I borrow? Understanding borrowing power in Australia

What is borrowing power?

Borrowing power (also called borrowing capacity or serviceability) is the maximum amount a lender is willing to lend you based on your financial situation. It is not a reflection of how much you can afford in a broader sense — it is specifically what a lender has assessed they are comfortable lending you under current responsible lending guidelines.

Your borrowing power determines your price ceiling. If a lender assesses your borrowing power at $550,000 and you have a $100,000 deposit, your maximum purchase price is approximately $650,000 (before accounting for stamp duty and purchase costs).

Understanding borrowing power before you start your property search is one of the most important steps in the home buying process.

How lenders calculate your borrowing limit

Australian lenders use a serviceability assessment to calculate your borrowing power. The core question is: can you comfortably afford the repayments on this loan at a stressed interest rate?

The lender looks at your gross income, deducts your committed expenses and living costs, and determines what monthly repayment you can sustain. They then work backwards from that repayment to calculate the maximum loan amount.

The formula in simplified terms:

• Calculate your net monthly income (after tax)
• Deduct your monthly committed expenses (existing debts, credit card limits, living costs)
• The remaining figure is your assessed repayment capacity
• Calculate the maximum loan where repayments fit within that capacity — at the stressed rate, not the actual rate

This is why your borrowing power can be lower than you expect even when you have a healthy income. Large existing debts, high credit card limits, or significant living expenses all reduce the amount left over for new loan repayments.

The serviceability buffer — what it is and why it matters

APRA APS 220 requires authorised deposit-taking institutions to apply a serviceability buffer of at least 3 percentage points unless APRA determines otherwise. Lenders may apply additional assessment requirements.

Illustration: a 6.00% loan rate plus a 3 percentage point buffer gives a 9.00% assessment rate; this is not a promise of a particular lender assessment.

For an illustrative 6.39% rate and a 3 percentage point buffer, the assessment rate is 9.39%. This is a scenario, not a current lender quote.

The buffer exists to protect borrowers from being overleveraged if rates rise in the future.

Practical impact: On a $600,000 loan at a 6% actual rate, your repayment is approximately $3,597 per month. At the 9% assessment rate, the lender models your repayment at approximately $4,828 per month. Your borrowing capacity is calculated against the higher figure.

Key factors that affect your borrowing power

Income

Gross income is the starting point. Higher income means higher capacity. The type of income also matters — lenders treat different income sources differently.

Existing debts

Every existing debt reduces your borrowing power. A $20,000 car loan, a $15,000 personal loan, and a $10,000 credit card balance all have minimum repayments that consume part of your assessed repayment capacity. Clearing these before applying meaningfully increases your borrowing power.

Credit card limits

A lender can assess the credit-card limit even when the balance is zero. The monthly obligation and resulting borrowing impact depend on its policy. Calcy’s card-limit assumption is disclosed in the model; it is not a universal lender rule.

Number of dependants

Each dependant (child) reduces your assessed borrowing power. Lenders use the Household Expenditure Measure (HEM) as a benchmark for living costs, and this figure increases with each dependant.

Employment type

Lenders assess the stability and evidence of each income source. Ask which payslips, contracts, tax returns or business records are required and whether any income is discounted; no universal evidence period applies.

Interest rate environment

When rates rise, borrowing power falls — even if your income and expenses stay the same. The higher the assessment rate (actual rate + 3% buffer), the lower the maximum loan the lender will approve.

What lenders include as income

Ask how the lender verifies and treats each income source. No universal acceptance percentage applies:

• Base salary and employment conditions
• Overtime, allowances and bonuses: evidence period and any discount
• Rental, investment and government income: eligibility, stability and any discount
• Self-employed income: required financial statements and tax returns

What lenders generally do not include:

• Overtime that is not regular and consistent
• One-off bonuses
• Gifts or inheritances
• Gambling winnings
• Income that cannot be verified with documentation

What lenders include as expenses

Lenders assess your committed monthly expenses against benchmarks. They will typically use the higher of your declared expenses or the Household Expenditure Measure (HEM) benchmark for your situation.

Committed expenses that directly reduce your borrowing power include:

• Existing loan repayments (home loans, car loans, personal loans)
• Minimum repayments on all credit cards and buy-now-pay-later accounts
• HECS/HELP debt repayments (calculated as a % of your income based on current ATO thresholds)
• Child support and maintenance payments
• Ongoing rental payments if applicable

Living expense benchmarks used by lenders are based on your household type and are regularly updated. If your declared expenses are below the HEM benchmark, the lender will use the benchmark.

How to increase your borrowing power

Pay down or close existing debts

Every dollar of existing debt reduces your borrowing capacity. Prioritise paying off personal loans, car loans, and credit cards before applying for a home loan.

Reduce or cancel unused credit cards

Cancel credit cards you don't use and reduce limits on cards you do use before applying. A credit card limit reduction the month before your application can meaningfully increase your assessed borrowing power.

Pay off or manage your HECS debt

HECS repayments are compulsory once your income exceeds the minimum repayment threshold, and lenders factor these into your serviceability assessment.

Increase your income

If you're due for a salary review, negotiating a pay increase before applying (and having it reflected in at least one payslip) increases your assessed income.

Apply with a partner

Two incomes are assessed together in a joint application. Applying jointly with a partner — assuming both incomes are stable — can significantly increase your combined borrowing power compared to applying individually.

Avoid major financial changes before applying

Changing jobs, making large purchases on credit, or taking on new debts in the months before applying can negatively affect your application.

Choose the right lender

Borrowing assessments differ by lender, income treatment, expenses, security and policy. Compare written assessments rather than assuming a fixed dollar difference.

Borrowing power vs deposit — which limits you?

Both can limit your maximum purchase price, but in different ways.

Your borrowing power sets the ceiling on your loan amount. Your deposit sets the minimum you need to bring to the table. Together, they define your price range.

For example: with a borrowing power of $550,000 and a deposit of $80,000, your maximum purchase price is approximately $630,000 (before upfront costs).

In most cases for first home buyers, the deposit is the binding constraint in affordable markets and borrowing power becomes the constraint in higher-value markets.

Borrowing power by salary — real examples

Illustrative Calcy model examples: one borrower, no dependants, partner/overtime/rental income, other debt repayments or credit-card limits; $3,000 monthly living expenses; 6.39% rate; 3 percentage point assessment buffer; 30 years; $80,000 deposit. The model applies its own expense floor. Maximum purchase excludes duty, LMI and other purchase costs. These are estimates, not lender approvals.

Debts, credit limits and lender-specific expense assessments change the estimate. Enter your actual commitments in the calculator rather than applying an assumed dollar reduction from a generic table.

Use Calcy's borrowing power calculator to get a personalised estimate based on your actual income, expenses, and debts.

How HECS-HELP debt affects borrowing power

HECS-HELP debt is factored into your borrowing power assessment. Unlike credit cards, lenders do not treat HECS as a debt that requires a minimum monthly repayment — instead, they calculate a compulsory repayment based on your income.

For 2026–27, HELP repayments use 15% of repayment income between $69,528 and $129,717, plus 17% above $129,717, capped at 10% of repayment income and the remaining debt. Repayment income can include more than salary.

At $90,000 repayment income with sufficient HELP debt, the 2026–27 estimate is $3,070.80 annually, or $255.90 per month. The borrowing impact depends on expenses, loan terms and lender policy.

For a detailed breakdown, use Calcy's HECS borrowing power calculator.

How lenders assess self-employed borrowers

Self-employed borrowers are assessed differently. Instead of a single payslip showing guaranteed income, lenders typically use:

• Tax returns and financial statements for the period the lender requests
• Business activity statements (BAS) to verify ongoing revenue
• Accountant letters confirming the income position
• Any averaging or adjustments specified in the lender’s written assessment criteria

If your taxable income is low due to business deductions, lenders may add back certain non-cash deductions (such as depreciation) to assess your true borrowing capacity.

Self-employed borrowers should expect a more detailed application process and may need to provide additional documentation.

How to improve your borrowing power before applying

Check your credit score first

Your credit score affects both your approval chances and the interest rate offered. Request a free credit report from Equifax, Experian, or Illion and address any errors before applying.

Reduce credit card limits

Unused card limits can reduce assessed capacity. Ask how the lender treats each facility and consider the effect of reducing limits; no fixed dollar improvement is guaranteed.

Close unused store accounts

Disclose buy-now-pay-later accounts and store cards, including unused limits. Ask how the lender assesses them before deciding whether to close an account.

Pay down consumer debt

Existing repayment commitments reduce the surplus available for a mortgage. Enter monthly repayments in the calculator; there is no universal debt-to-borrowing-capacity conversion.

Stabilise your employment

Ask how a job change, probation, casual work or a new contract affects your application. Evidence periods and acceptable employment history depend on the lender; pre-approval conditions still need to be met.

Common borrowing power mistakes

These are the most common errors borrowers make when estimating their borrowing power:

Only looking at one lender

Each lender uses its own assessment criteria. A different estimate is not a promise of approval or a reason to borrow the maximum.

Forgetting the 3% buffer

Many first-time borrowers assume they can borrow the amount where repayments match their current rent. The APRA buffer adds 3% to the assessment rate, reducing actual borrowing power.

Ignoring credit card limits

Credit limits may matter even with a zero balance. Check the lender’s policy rather than treating an unused card as having no impact.

Applying for multiple loans at once

Multiple credit enquiries in a short period create a pattern that some lenders interpret as financial distress. Space out applications and use an indicative calculator first.

Key takeaways

• Borrowing power is calculated based on your income, expenses, existing debts, and a 3% serviceability buffer above the actual rate
• Credit card limits — not balances — reduce your borrowing power significantly
• Closing unused credit cards and paying down debts are the fastest ways to increase your limit
• HECS debt is factored into assessments and reduces your capacity
• Borrowing power varies between lenders — a broker can find the most favourable assessment for your profile
• Use Calcy's free borrowing power calculator to get an estimate based on your actual numbers

Sources

APRA — APS 220 serviceability requirements

ASIC Moneysmart — Mortgage repayment calculator

RBA — Household Borrowing

Frequently asked questions

Does getting pre-approval affect my credit score?

A formal pre-approval involves a credit check which creates an enquiry on your credit file. Multiple enquiries in a short period can slightly reduce your credit score. A pre-qualification or indicative assessment from a broker may be done without a formal credit check.

How long does a borrowing power assessment take?

An online model can provide an immediate estimate. Formal pre-approval requires lender assessment; ask about documentation, conditions and timing for your application.

Does my borrowing power change if interest rates change?

With other inputs fixed, a higher mortgage assessment rate lowers the loan supported by the same repayment budget. An RBA decision does not automatically change your lender’s assessment rate or approval.

Can I borrow more by using an offset account?

An offset reduces interest on the linked loan. Calcy’s serviceability model does not treat an offset balance as an automatic increase in borrowing capacity; ask your lender how it assesses savings, debt and ongoing commitments.

What if my borrowing power is less than I need?

Save a larger deposit; reduce existing debts to improve serviceability; apply with a co-borrower; target a lower purchase price; or model a different interest rate. A lower rate does not guarantee a higher lender assessment or approval. A mortgage broker can help you identify which approach is most effective.