Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
How do lenders calculate my borrowing power?
How much can you borrow for a home loan in Australia? This guide by Lend & Loan (80 five-star reviews) explains borrowing power, income assessment, and how different lenders calculate capacity differently.
Lenders use a serviceability calculation that compares your income (after tax, shaded for variability) against your existing commitments plus the proposed loan repayment at an assessment rate 3% above the actual rate. For example, if the loan rate is 6.29%, the lender tests whether you can afford repayments at 9.29%. This buffer ensures you can handle rate increases.
The calculation also deducts a living expense estimate (HEM or declared expenses, whichever is higher), existing debt repayments, and credit card limits. Even a credit card with a zero balance counts against you at its full limit. The formula is straightforward: income minus expenses minus buffer-tested repayments equals your maximum borrowing capacity.
How much can I borrow on a $100,000 salary?
On a $100,000 gross salary with no other debts, no dependants, and a clean credit history, most lenders will approve approximately $600,000 to $700,000 in borrowing, enough for a quality unit in suburbs like Bankstown or Campbelltown. Add a partner earning $80,000 (combined $180,000) and borrowing power rises to approximately $1.05M to $1.2M.
These figures assume no existing loans, no credit cards, and standard living expenses. Every additional debt or dependant reduces the number. A $500 per month car loan reduces borrowing power by approximately $75,000. Two dependants typically reduce it by $40,000 to $60,000 depending on the lender.
What reduces my borrowing power the most?
The biggest borrowing power killers in order: existing debt repayments (car loans, personal loans, HECS/HELP), credit card limits (even with zero balance), number of dependants, living expenses (lenders now scrutinise bank statements), and afterpay/BNPL commitments.
- $20,000 credit card limit: reduces borrowing power by approximately $60,000
- $400/month car repayment: reduces borrowing power by $60,000 to $75,000
- HECS debt: reduces borrowing power based on the repayment threshold percentage
- Afterpay/BNPL: $2,000 limit can reduce borrowing by $10,000 to $15,000
- Each dependant: reduces borrowing power by $20,000 to $40,000 depending on the lender
Does HECS/HELP debt affect my borrowing power?
Yes. Lenders deduct the mandatory HECS repayment from your income in their serviceability calculation. The repayment is a percentage of your income (currently 1-10% depending on income bracket). On a $100,000 income, the HECS repayment rate is 7%, or $7,000 per year. This reduces borrowing power by approximately $50,000 to $60,000 compared to a borrower without HECS.
You cannot avoid this by making voluntary repayments before applying, because the lender uses your mandatory repayment rate, not your balance. However, if you can pay off the entire HECS balance before applying, the mandatory repayment drops to zero and your borrowing power increases.
How does overtime, bonuses, and commission income affect borrowing power?
Lenders typically shade variable income. Overtime is usually accepted at 80% of the average over 2 years if it is regular and ongoing. Bonuses are accepted at 80% of the 2-year average if documented by your employer. Commission income is accepted at 80% of the 2-year average for borrowers with 2+ years in the same role.
Some lenders are more generous with variable income than others, which is why a broker comparing 50+ lenders can find significantly more borrowing capacity for commission or overtime earners than going to a single bank. One lender might count 80% of your overtime while another counts only 50%, and that difference alone can be worth $80,000 to $120,000 in borrowing capacity.
Why do different lenders give me different borrowing amounts?
Each lender uses their own serviceability calculator with different assumptions. They differ on: the assessment rate buffer (most use 3%, some use 2.5%), how they treat overtime and bonus income, living expense assumptions (HEM benchmarks vary), how they assess rental income on investment properties (60-80% shading), and credit card treatment.
This is why the same borrower can be approved for $750,000 at one lender and $900,000 at another. A Sydney mortgage broker finds the lender whose calculator best fits your income profile. For a PAYG employee with straightforward income, most lenders give similar results. For someone with overtime, bonuses, commission, or self-employed income, the variance between lenders can be $100,000 or more.
How can I increase my borrowing power before applying?
The most effective actions in order of impact:
- Close unused credit cards: each $10,000 limit costs approximately $30,000 in borrowing power
- Pay off personal loans and car loans: or pay them down significantly before applying
- Reduce afterpay and BNPL accounts to zero: close them entirely, not just pay to zero
- Avoid changing jobs: in the 3 months before applying, job changes complicate income verification
- Increase genuine savings: shows financial discipline and strengthens your application
- Consider a longer loan term: 30 years gives more borrowing power than 25 years, you can always pay it off faster
Does rental income increase my borrowing power for a second property?
Yes, but lenders only count 60-80% of rental income (to account for vacancies and expenses). If your investment property generates $600/week in rent ($31,200/year), most lenders will assess $18,720 to $24,960 as usable income. They also deduct the investment loan repayment and property holding costs.
Net effect: an investment property that is positively geared increases borrowing power, while a negatively geared property decreases it. Post-May 2026 Budget, the loss of the negative gearing tax offset on new established purchases further reduces the assessed benefit for investors buying established properties.
How does the 3% assessment rate buffer work?
APRA requires all lenders to test your loan serviceability at a rate at least 3 percentage points above the loan's actual rate. If you are borrowing at 6.29%, the lender assesses whether you can afford repayments at 9.29%. On a $800,000 loan over 30 years, that is the difference between $4,949/month (at 6.29%) and $6,609/month (at 9.29%).
This $1,660/month gap is what limits most borrowers' capacity. If APRA ever reduces this buffer (as has been discussed), borrowing power across the market would increase significantly. Until then, the buffer is the single largest constraint on how much Australians can borrow.
The number one thing I do before submitting any application is a borrowing power optimisation. I look at your credit cards, your HECS, your car loans, your bank statement spending patterns, and I tell you exactly what to change to maximise your approval amount. Last week I helped a couple increase their borrowing power by $120,000 just by closing two unused credit cards and paying off a $5,000 afterpay balance. That $120,000 was the difference between missing out on the property they wanted and getting it.
