Understanding how much you can borrow is the foundation of any property purchase or refinance decision. Your borrowing power determines which properties are within your reach, how much you will repay each month, and the overall cost of your loan. This guide explains how lenders assess your capacity and what you can do to strengthen your position.
What Is Borrowing Power?
Borrowing power (also called borrowing capacity) is the maximum amount a lender is willing to lend you based on your financial situation. It is determined by your income, expenses, debts, and the lender's own assessment criteria. Two people with identical incomes can have vastly different borrowing capacities depending on their expenses, existing debts, and which lender they approach.
How Lenders Assess Your Borrowing Capacity
Income Assessment
Lenders look at your gross income from all sources. For PAYG employees, this typically includes your base salary and may include regular overtime, bonuses, and commissions — though lenders often "shade" (discount) variable income components. For example, a lender might count 80% of overtime and 60% of bonus income.
Self-employed borrowers are assessed differently. Lenders typically look at the last two years of tax returns and financial statements, calculating an average or using the lower of the two years. Some lenders accept one year of financials for established businesses. Your broker can identify which lenders take the most favourable view of self-employed income.
Other income sources that may be considered include rental income (usually shaded to 80%), government payments (such as Family Tax Benefit), investment dividends, and salary sacrifice contributions. Not all lenders accept all income types, so the lender you choose matters.
Expense Assessment
Since the introduction of responsible lending obligations, lenders scrutinise expenses more carefully than ever. They will review your bank statements (typically the last three months) to verify your declared expenses. Lenders compare your declared expenses against the Household Expenditure Measure (HEM) and use the higher of the two.
Common expenses that impact your borrowing power include rent, utilities, insurance premiums, school fees, childcare, subscriptions, dining out, and buy-now-pay-later commitments. Reducing discretionary spending in the months before applying can improve how your bank statements look to assessors.
Existing Debts and Liabilities
All existing debts reduce your borrowing power. This includes personal loans, car loans, HECS-HELP debts, credit cards, and buy-now-pay-later accounts. Credit cards are assessed on their limit, not their balance — a $15,000 credit card limit could reduce your borrowing capacity by $45,000 or more even if the card has a zero balance.
HECS-HELP debt is factored into the assessment based on your repayment obligations relative to your income. While it cannot be "removed" from the assessment, understanding its impact helps you plan realistically.
The Serviceability Buffer
Australian lenders are required to assess your ability to repay the loan at a rate higher than the actual product rate. This is called the serviceability buffer. As of early 2026, most lenders use a buffer of 3% above the product rate. This means if the loan rate is 6.00%, the lender assesses whether you can afford repayments at 9.00%.
This buffer is set by the Australian Prudential Regulation Authority (APRA) and is designed to ensure borrowers can handle rate increases. It also means that the rate you are offered directly impacts your borrowing power — a lender offering a lower rate will generally approve a higher loan amount because the buffer is applied to a lower starting point.
Practical Steps to Increase Your Borrowing Power
- Close unused credit cards and reduce limits. This is one of the most effective steps. Cancel cards you do not use and reduce limits on cards you keep to the minimum you need.
- Pay down existing debts. Reducing personal loans, car loans, and buy-now-pay-later balances frees up serviceability and increases how much a lender will offer you.
- Clean up your bank statements. Reduce discretionary spending in the three months before applying. Lenders review your statements, so consistently high spending on non-essentials can work against you.
- Increase your income. A pay rise, additional work hours, or a second income source all improve your borrowing capacity. If you have recently received a raise, make sure you have at least one payslip reflecting the new salary before applying.
- Extend the loan term. A 30-year loan term results in lower monthly repayments than a 25-year term, which can increase the amount a lender will approve. Discuss the trade-offs with your broker.
- Choose the right lender. Different lenders produce different borrowing capacities for the same borrower. A mortgage broker can run your scenario through multiple calculators to find the lender that offers the strongest result for your profile.
Borrowing Power with a Partner
Applying jointly generally increases your borrowing power because two incomes are assessed. However, both applicants' debts and expenses are also factored in. If one partner has significant debts or a poor credit history, it may in some cases be more effective for the stronger applicant to apply individually — though this depends on the specific circumstances and lender policies.
Using a Guarantor
A family guarantor can use the equity in their own property to support your loan application. This does not necessarily increase your borrowing power (which is based on your ability to service the loan), but it can eliminate the need for a full deposit and avoid LMI. Guarantor arrangements should be carefully considered, and we recommend both parties seek independent legal advice.
Learn more about how we can help assess your borrowing power through our first home buyer or next home services. Our brokers offer a free, no-obligation borrowing assessment to help you understand exactly where you stand.