A lender assessing your borrowing power while you’re on parental leave typically uses your reduced income for that period, not your pre-leave salary. That single adjustment can cut a borrowing estimate by tens of thousands of dollars, even when a return-to-work date is already locked in. Knowing how lenders actually treat parental leave before you apply can be the difference between a smooth approval and a knockback that feels arbitrary.
How Lenders Assess Income During Parental Leave
Most lenders base a home loan application on the income you are actually receiving at the time of assessment. If you’re on leave and receiving government Parental Leave Pay, employer-paid parental leave, or a combination of both, that reduced figure is generally what gets used in the serviceability calculation, not your full-time salary.
Some lenders will consider your pre-leave or post-leave income instead, but only with strong supporting evidence. A written letter from your employer confirming your role, salary, and confirmed return-to-work date carries real weight here. Without it, most lenders default to the income shown on your current payslips or Centrelink statements.
Policy differs more sharply here than borrowers expect. Some lenders will not approve an application at all while you’re on active parental leave, regardless of documentation, and require you to reapply once you’ve returned to work. Others will assess you during leave with the right paperwork in place. A decline during parental leave usually reflects that particular lender’s policy rather than anything about your creditworthiness, which is why matching the application to the right lender matters.
Will lenders count my pre-leave salary if I’m about to go on leave?
Generally, no, not by itself. Most lenders want evidence of income continuing at the pre-leave level, or a signed return-to-work agreement, before they’ll base an assessment on anything other than what you’re currently earning.
What Documents Lenders Usually Want
Applications during parental leave tend to need more paperwork than a standard application, not less. Lenders commonly ask for a Centrelink Parental Leave Pay statement, a letter from your employer confirming the terms of your leave and your intended return date, and your most recent payslips before leave began.
If you’re applying after returning to work, expect to provide one to three payslips showing your income has resumed at the expected level. Some lenders also want a bank statement showing salary deposits landing consistently before they’ll rely on the new income figure.
How This Affects Borrowing Capacity Calculations
Lenders apply a serviceability buffer, currently around 3 percentage points above the loan’s actual interest rate, when working out how much you can borrow. That buffer applies on top of whatever income figure the lender is using. When the income figure is already reduced because of parental leave, the buffer compounds the drop, often pushing the borrowing estimate down further than the income reduction alone would suggest.
This is one reason two borrowers with the same eventual household income can get very different borrowing power results, depending purely on when in the leave cycle they applied.
Applying Jointly With a Working Partner
If you’re applying with a partner who is still working full-time, their income can offset a lot of the reduction from your parental leave. Lenders generally combine both incomes for the assessment, so the impact on total borrowing power is often smaller than it looks when you focus on the parent-on-leave income alone.
Where it gets more complicated is if both partners have taken or are taking leave around the same time, or if one partner is self-employed and their income has also dipped while caring for a new baby. In those cases, lenders tend to look closely at each income source individually rather than relying on a combined household figure, which can catch borrowers off guard if they haven’t planned for it.
Applying Before, During, or After Parental Leave
Applying before leave starts means your full income is counted, but pre-approvals generally only last around 90 days, so this window suits borrowers who are close to finding a property already, not those still early in their search.
Applying during leave is the hardest path, and usually results in the lowest borrowing estimate unless you have strong documentation supporting a return-to-work income. Applying after returning to work, once you have a few payslips at the resumed salary, tends to give the clearest and most accurate picture of what you can actually borrow, though it does mean waiting.
None of these timing options is universally best. It depends on how urgently you need to buy, how much deposit you have ready, and how confident your employer’s return-to-work confirmation is. A broker who knows which lenders take a more flexible view of parental leave income can meaningfully change what’s achievable, since policy on this varies more between lenders than most borrowers expect.
Key Takeaways
- Lenders generally assess borrowing power using your income during parental leave, not your pre-leave salary.
- Government Parental Leave Pay and any employer-paid leave are usually the income figures used while you’re not earning your full wage.
- A written return-to-work agreement from your employer can help some lenders factor in your post-leave salary instead.
- The standard serviceability buffer applies on top of your reduced income, which can lower borrowing capacity more than the income drop alone.
- Applying for pre-approval before leave starts, or waiting until you’re back at work with a few payslips, are both common strategies.
- Policy on parental leave income varies significantly between lenders, so comparing options with a broker can widen what’s achievable.