Borrowing capacity
The maximum a lender will advance you, based on income, expenses, debts and a stressed interest rate.
Lenders assess capacity by taking your income, subtracting living expenses and existing commitments, and testing whether you could still meet repayments at a higher rate than the one offered.
That buffer is required by regulators and typically adds around three percentage points to the assessment rate. A loan priced at 6% is commonly tested at around 9%.
Credit card limits count in full even when the balance is zero, and BNPL, HECS repayments and car loans all reduce capacity. Cancelling unused facilities before applying is one of the quickest improvements available.
Capacity is also sensitive to how income is treated. Overtime, bonuses, commissions and rental income are each shaded by different percentages between lenders, so two banks can assess identical payslips very differently.
Why the buffer bites
A loan advertised at 6% assessed at 9% means the lender checks you could afford repayments roughly 40% higher than the ones you will actually make.
The bit people get wrong
A $10,000 credit card limit you never use can reduce borrowing capacity by tens of thousands, because lenders assume the entire limit is drawn and repaid at a high minimum rate.
Common questions
How can I increase my borrowing capacity?
Reduce or close credit card limits, clear personal and car loans, cut discretionary spending for several months before applying, and avoid new credit applications.
Does HECS affect it?
Yes. Compulsory repayments are treated as a committed expense, so a HECS debt can reduce capacity noticeably at higher incomes.
Why do lenders give different answers?
Each uses its own expense benchmarks, income treatment and buffer settings. Differences of a hundred thousand dollars or more between lenders are common.
Run your own numbers