Ask three lenders how much you can borrow on the same income and you can easily get three answers that sit tens of thousands of dollars apart. Borrowing power is the output of each lender’s own serviceability model, applied to your income, expenses, debts and an assessment rate well above the rate you will actually pay. Understanding those inputs explains why online calculators disagree, and why Cotality estimates this year’s four cash rate rises have cut median borrowing capacity by almost $90,000.
How is borrowing power calculated in Australia?
Every lender is trying to answer one question: after tax, living costs and existing debts, is there enough left each month to cover the new loan with room to spare? Your maximum borrowing amount is the loan size at which that monthly surplus reaches the lender’s minimum.
The repayment used in that test is calculated at an assessment rate. APRA expects lenders to add a buffer of at least 3.0 percentage points to the actual rate, and some lenders also apply a minimum floor rate. A $700,000 loan at 6.3% over 30 years costs about $4,333 a month, but the lender tests it at around 9.3%, or about $5,784 a month.
That gap is why a rate cut or rise moves borrowing power so quickly. Every change to the actual rate flows through to the assessment rate, because the buffer still sits on top, unless a lender’s floor rate is higher.
Why borrowing power differs between lenders
Lenders all follow the same broad framework, but they set the individual inputs differently. Small differences in each input compound into a large difference in the final number.
Income shading
Base salary is usually counted in full, but other income often is not. Many lenders count overtime at around 80% and want a history of it before including it at all. Bonuses and commission often need a two-year average, and rental income is commonly assessed at 75% to 80% of the gross rent to allow for vacancies and costs. One lender may accept a second job or a recent pay rise that another ignores.
Living expenses and HEM
Lenders use the higher of your declared living expenses or a benchmark such as the Household Expenditure Measure (HEM), which estimates typical spending for your household size and income. HEM works as a floor, so it can only increase your assessed expenses. Lenders use different versions and tiers of these benchmarks, which means the same household can be assessed with different living costs at different lenders.
Existing debts
Most lenders treat every credit card limit as a monthly commitment, often around 3.0% of the limit, even with a zero balance. A $20,000 limit can count as about $600 a month. HECS or HELP debt, car loans and buy now pay later accounts are also assessed, and lenders calculate them in different ways.
Debt-to-income limits
Many lenders also cap your total debt as a multiple of your gross income. Since February 2026, APRA has limited banks and other authorised deposit-taking institutions to writing no more than 20% of new owner-occupier lending, and 20% of new investor lending, at a debt-to-income ratio of six times or more. Each lender decides which borrowers fit inside that allowance, so a borrower with a high income multiple may be approved at one bank and declined at another. Non-bank lenders sit outside APRA’s limit, though they set their own debt-to-income policies.
Why do online borrowing power calculators give different results?
Online calculators use simplified versions of a single lender’s model, or a generic average. Most cannot reflect how your specific income will be shaded, which HEM tier applies to you, or how your debts will be counted. Treat the result as a starting estimate, and expect a full assessment to land somewhere different. You can test a few scenarios using our home loan calculators.
What you can change to improve your borrowing power
Some inputs are within your control. Reducing or closing unused credit cards, paying off a small personal loan or car loan, and closing buy now pay later accounts all lower your assessed commitments, often by more than borrowers expect.
Your spending in the three months before you apply also matters, because many lenders review recent bank statements to verify declared expenses. A longer loan term, such as 30 years instead of 25, lowers the assessed repayment and lifts borrowing power, though it also increases the total interest paid over the life of the loan.
Lender choice is the biggest lever of all. Self-employed borrowers, people with variable income and investors with several properties often see the widest spread between lenders, because policies on those files vary the most. At JRW Finance, we compare how different lenders would assess your situation before you apply, so the application goes to a lender whose policy suits your income type. You can learn more about our home loans service.
Key Takeaways
- Borrowing power is the loan size at which your monthly surplus, after tax, living costs, debts and the new repayment, reaches the lender’s minimum.
- Lenders test new loans at an assessment rate at least 3.0 percentage points above the actual rate, so every rate change moves borrowing power.
- Lenders differ on income shading, living expense benchmarks, debt treatment and debt-to-income limits, which is why the same income produces different results.
- Credit card limits are usually assessed even with a zero balance, so reducing unused limits can lift borrowing power before you apply.
- Since February 2026, APRA has capped high debt-to-income lending at banks to 20% of new owner-occupier and investor lending.
- Online calculators give a starting estimate only, because they cannot reflect each lender’s full policy.