How Much Can I Borrow? Australian Home Loan Borrowing Power Explained

Australian banks use a detailed formula to determine how much they will lend you for a home loan. The core calculation involves your gross income minus your estimated living expenses, existing debt repayments, and tax obligations, leaving your net surplus income.

The bank then calculates the maximum loan amount where the repayments (assessed at a higher stress-test rate) would consume this surplus. Most lenders use a debt-to-income ratio of around 6 to 8 times your gross income as an upper boundary, though the actual amount depends on your individual circumstances. A single person earning $100,000 per year with no other debts might borrow around $550,000 to $650,000, while a couple earning $180,000 combined could borrow approximately $900,000 to $1,100,000 depending on expenses and the lender.

Since October 2021, APRA requires all lenders to assess your ability to repay a home loan at the loan's interest rate plus a buffer of at least 3 percentage points. This means if the actual home loan rate is 6.2%, the bank must assess whether you can afford repayments at 9.2%.

This buffer exists to ensure borrowers can handle interest rate rises without defaulting. The 3% buffer has significantly reduced borrowing power compared to the previous 2.5% buffer. For example, on a 30-year principal and interest loan, the difference between being assessed at 8.7% versus 9.2% can reduce your maximum borrowing power by approximately $30,000 to $50,000.

The practical side: While the buffer protects borrowers, it has been criticised for being too restrictive in a high-rate environment where rates are unlikely to rise another 3%.

Not all income is treated equally by lenders. Base salary is accepted at 100% of gross value and is the most straightforward income type.

Regular overtime and shift allowances are typically accepted at 80% if you can demonstrate a consistent history over 12 months or more. Bonuses and commissions are usually assessed at 60% to 80% of the average over the last two years. Rental income from existing investment properties is generally accepted at 70% to 80% to account for vacancy and expenses.

Government payments like Family Tax Benefit are accepted by some lenders but not all, and may be shaded to 50-80%. Self-employed income requires two years of tax returns and is assessed on the lower of the two years or the average. Casual employment income generally requires a minimum 12-month history with the same employer.

Lenders assess your living expenses using either your declared expenses or the Household Expenditure Measure (HEM), whichever is higher. HEM is a benchmark developed by the Melbourne Institute that estimates median household spending based on family size and income level.

What actually happens: If your declared expenses are lower than HEM, the bank will use HEM instead — which means you can't simply understate your expenses to borrow more. Existing debts have a massive impact on borrowing power. Each $10,000 of credit card limit (even if unused) can reduce your borrowing power by $30,000 to $50,000, because lenders assume you could draw the full limit at any time.

HECS-HELP debt, personal loans, car loans, and buy-now-pay-later accounts all reduce your capacity. Closing unused credit cards before applying is one of the most effective ways to quickly increase your borrowing power. Worth double-checking.

There are several practical strategies to increase the amount a bank will lend you. First, close any unused credit cards and reduce limits on existing cards — this immediately frees up borrowing capacity.

Second, pay down or consolidate existing debts before applying. Third, reduce your declared living expenses by cutting discretionary spending for at least three months before your application, as lenders review your bank statements. Fourth, consider a longer loan term (30 years rather than 25) to reduce the assessed repayment amount.

Fifth, if you're a couple, ensure both incomes are included in the application. Sixth, shop around between lenders, as each bank has different assessment criteria and some are more generous than others. Finally, consider using a mortgage broker who can identify which lenders will give you the best result based on your specific circumstances.

Here's the thing. Our free Borrowing Power Calculator provides an instant estimate of how much you could borrow based on your income, expenses, and existing debts. It applies the current 3% serviceability buffer and uses standard lender assessment criteria to give you a realistic estimate.

While every lender is slightly different, the calculator provides a reliable guide for your property search budget. Simply enter your income details, monthly expenses, and any existing debt repayments to get your estimate. We recommend using the calculator before you start seriously looking at properties, so you've a clear budget in mind and don't waste time inspecting homes outside your range.

Remember that pre-approval from a lender gives you a more accurate and binding borrowing limit.