Ask "how much can I borrow?" and you'll hear rules of thumb like "five times your income". Real lenders don't work that way. They run a serviceability test: can your after-tax income comfortably cover the repayments, plus a safety buffer, after your living costs and existing debts are accounted for? Understanding that test is what tells you which moves actually shift your number.
The APRA serviceability buffer
Lenders don't test you at today's interest rate. The regulator, APRA, requires them to check you could still afford the loan if rates rose by at least 3 percentage points, so a loan priced at 6% is assessed near 9%. That buffer has sat at 3% since October 2021 and was reaffirmed in 2025. It's the single biggest reason your borrowing capacity comes in lower than a simple repayment calculator suggests.
The rate you'd genuinely pay today, say 6%, is what sets your repayment.
Lenders assess whether you could still service the loan near 9%, so your approved amount is sized to the higher figure, not the one you'll actually pay.
Your capacity is set by the rate you might face, not the rate you're actually offered.
The HEM floor: why understating expenses won't help
Lenders take the greater of the living expenses you declare or a benchmark called the Household Expenditure Measure (HEM), a minimum estimate of what a household your size and income realistically spends. Writing down a tiny grocery bill won't inflate your borrowing power: the HEM floor catches it.
What lifts and lowers your number
Some factors work in your favour, others work against you, and a few surprise people entirely:
- Higher, stable income. Regular PAYG income counts more cleanly than irregular or casual earnings.
- Lower living expenses. Down to the HEM floor, but not below it.
- Fewer dependants. Fewer mouths to feed lowers the expense side of the test.
- A longer loan term. Spreads the repayment thinner, which raises what you can service.
- Credit-card limits. Counted as debt against you at the full limit, even sitting at $0 owing.
- Car loans, BNPL and personal loans. Every existing repayment eats into what's left for the mortgage.
- A HECS/HELP debt. Treated as an ongoing repayment that reduces your free income.
- Higher interest rates. And the 3% buffer stacked on top of them.
Two quick wins people overlook: closing or reducing credit cards before you apply (it's the limit, not the balance, that counts), and clearing small consumer debts first.
Borrowing power vs your deposit
These are two different limits, and it's easy to mix them up:
What your income, buffered at +3%, can support in repayments. This is your borrowing power.
Your deposit plus the loan sets what you can pay for a property. At 20% down, you also avoid Lenders Mortgage Insurance.
A bigger deposit lets you buy more, but it doesn't raise what your income can service, so both need to line up before you set a price range.
Every lender is different: treat any number as a starting point
Every lender has different policies. How they treat overtime, bonuses, rental income and casual work varies a great deal, so two banks can quote very different figures for exactly the same person and the same payslip. Use an estimate to set your search range, then get a real assessment or pre-approval before you bid on anything.
The bottom line
Your borrowing power isn't a multiple of your income, it's what's left of it after a 3-percentage-point rate buffer, your real or HEM-floored expenses, and every existing debt and credit limit are taken into account. Trim the credit cards, clear the small debts, and know that serviceability and deposit are separate ceilings that both need to clear before you can buy.
Enter your income, expenses and commitments, assessed with the APRA 3% buffer, like a lender would.
General information only, not financial advice or a lending offer. Check ASIC MoneySmart or speak to a lender or broker for your situation.