Your borrowing capacity — the maximum amount a lender will approve — is one of the first things to understand before you start looking at properties. The number is more nuanced than most people expect, and understanding what drives it gives you real tools to improve it.
Lenders assess your borrowing capacity using a serviceability test. They look at your gross income, subtract your living expenses (using a benchmark called the Household Expenditure Measure as a minimum), subtract repayments on any existing debts, and then calculate the maximum loan where the repayments fit within what remains — assessed at a rate that is typically 3% higher than the actual loan rate. This buffer exists to ensure you could still afford the loan if rates rise.
Every lender applies this formula slightly differently. Some are more generous with how they treat rental income, overtime, bonuses or self-employed income. This is why your borrowing capacity can vary significantly from one lender to another — and why comparing across multiple lenders through a broker often results in a meaningfully higher figure than going direct to your bank.
Higher income is the most direct lever — every additional dollar of stable, verifiable income increases the amount you can borrow. Reducing existing debt commitments also helps significantly. Credit card limits are assessed as if fully drawn, so reducing or cancelling cards you do not use can add tens of thousands to your borrowing capacity. Similarly, paying off a car loan or personal loan before applying changes the calculation materially.
Your living expenses also matter. Lenders use either your declared expenses or the HEM benchmark, whichever is higher. If your actual expenses are lower than HEM, you do not get credit for that — but if they are higher and you declare them honestly, it reduces capacity. This is why financial preparation in the 3–6 months before applying is worthwhile.
Existing debts are the biggest constraint. Buy now pay later accounts, personal loans, car loans and credit cards all reduce capacity — often significantly. Dependants also reduce it, as lenders factor in the cost of supporting children or other dependants.
Employment type matters too. PAYG employees with stable income are assessed most favourably. Casual employees, contractors and self-employed applicants face more scrutiny, and some lenders apply a discount to income that has not been consistent for at least two years.
Because every lender calculates capacity differently, the same applicant can have meaningfully different borrowing capacity at different lenders. A broker who compares across 60+ lenders can identify which lenders are most favourable for your specific income type, debt profile and expenses — and present your application in the way that best reflects your real financial position.
Useful as a starting point, but they use simplified assumptions. The actual figure from a lender depends on your specific income, expense and debt profile, and which lender's criteria your application is assessed against. A broker assessment gives you a far more precise and actionable figure.
Yes. The most effective steps are reducing credit card limits, paying off or consolidating smaller debts, and avoiding new credit applications in the months before you apply. We can review your situation and tell you exactly which changes would have the biggest impact.
Yes, if you are applying jointly. Joint applications pool income and expenses. In some cases a joint application significantly increases capacity; in others — where one partner has high debts — it can reduce it. We model both scenarios for you.