Borrowing Power Explained
What actually sets your borrowing capacity — income, debts, the HEM expenses benchmark, and the ~3% stress-test buffer banks add to every application.
Ask three banks how much you can borrow and you'll get three different numbers — sometimes tens of thousands of dollars apart. They're not making it up; they're all answering the same question with slightly different maths.
The question is never 'how much do you want?' It's 'how much could you repay if things got worse?' Income in, commitments out, a safety margin on top — the number that survives is your borrowing power. Here's each ingredient, and why the recipes disagree.
Income: not all dollars are equal
Your base salary counts in full. The rest of your income gets a haircut: banks often count only a portion of overtime, bonuses and commission, because those can vanish in a bad year. Casual income might need a track record before it counts at all. Rental income is usually 'shaded' — bank speak for counting only part of it, to allow for vacancies and repairs.
So two people earning the same total can have very different borrowing power depending on how that income is built. Boring, salaried and predictable is what the machine likes.
Debts: your credit card limit is testifying against you
Every existing commitment shrinks the pot: car loans, personal loans, HECS repayments, buy-now-pay-later plans. The sneakiest one is the credit card you never use.
Banks assess credit cards on the limit, not the balance — you could max it out the day after settlement, so they treat the whole limit as debt-in-waiting. A $20,000 limit you've never touched can quietly carve a serious chunk off what you can borrow.
💡Quick win
Cancel unused credit cards or slash the limits before applying. Banks assess the limit as if it were fully drawn — an idle card with a big limit is pure dead weight on your application.
HEM: the benchmark that doubts your budgeting
You declare your living expenses on the application — and the bank may politely ignore you. Lenders compare your declared spending against HEM, the Household Expenditure Measure: a benchmark of what a household like yours (your income, location, kids) typically spends on life.
Then they use whichever number is higher. Claim you live on instant noodles and the bank uses the benchmark anyway; declare more than HEM and your real number is what counts. The benchmark exists because applicants' expense estimates have historically been optimistic.
- You declare your expenses; the bank checks them against the HEM benchmark
- Whichever figure is higher is the one used in the assessment
- Benchmark spending scales with income, location and dependants
- A few months of visibly tidy spending before applying doesn't hurt
The 3% stress test you didn't ask for
Banks don't test whether you can afford the loan at today's rate. Under the regulator's rules, they add a serviceability buffer — currently around 3 percentage points — on top. Offered 6%? You're assessed as if you'll pay roughly 9%.
The buffer is why your borrowing power is always less than the raw repayment maths suggests — and why it drops when rates rise, even if your income hasn't changed. It's also the thing standing between you and a loan one rough year could sink.
🧐Reality check
You're not assessed at the rate you'll pay — you're assessed at that rate plus a buffer of around 3 percentage points. A 6% offer is stress-tested at roughly 9%. That gap is most of why the bank's number feels stingy.
Why the answers differ — and what to do
Each lender picks its own income haircuts, its own treatment of your debts, its own expense checks layered on the same HEM base. Identical facts, different recipes, different maximums. 'This lender will give you more' isn't generosity — it's arithmetic settings.
What you control: kill unused card limits, clear small debts, tidy your spending for a few months, and get income looking stable and documented. And remember the maximum is the bank's answer, not a recommendation — the repayment you can live with at the buffered rate is the real number. This is general information, not advice.
FAQ
Why do banks offer different borrowing amounts?
Each lender applies its own settings: how much overtime or rental income to count, how to weigh your debts, and how expenses are checked against the HEM benchmark. Identical facts run through different formulas produce different maximums.
What is the serviceability buffer?
A stress test regulators require: banks assess your repayments at the offered interest rate plus a buffer of around 3 percentage points. It checks you could still cope if rates rose, and it's a big reason borrowing power feels lower than expected.
Do unused credit cards reduce borrowing power?
Yes. Banks assess a credit card by its limit, not its balance, treating the whole limit as debt you could rack up tomorrow. Cancelling unused cards or lowering limits before applying can meaningfully lift your capacity.
Run your own numbers
Sources: figures checked against ATO published rates and thresholds for FY2025-26 at the review date. See how we check our numbers.
⚠️ General information only — not tax or financial advice. Figures relate to FY2025-26 unless stated otherwise.