How much can you borrow? Borrowing power and the serviceability buffer explained
Borrowing power is the maximum a lender will let you borrow based on your ability to repay. It is rarely as high as people hope, and understanding why helps you improve it. The single biggest factor most buyers have never heard of is the serviceability buffer.
What lenders actually assess
When a lender works out your borrowing power, they build a picture of your monthly surplus: income in, minus living expenses, existing debts, and the repayments on the new loan. The bigger and more reliable your surplus, the more they will lend.
The main inputs are:
- Income: salary, and often a discounted portion of bonuses, overtime, rental or self-employed income.
- Living expenses: assessed against benchmarks and your actual statements.
- Existing debts: car loans, personal loans, HECS/HELP, and especially credit card limits (assessed even if the balance is zero).
- Dependants and household size.
The serviceability buffer: the 3% rule
Here is the part that surprises people. Under APRA rules, lenders must check that you could still afford your repayments if your interest rate rose by 3 percentage points. So if variable rates are around 6.5%, the lender assesses you as though you were paying roughly 9.5%.
The new DTI speed limit
From February 2026, there is an additional constraint. Banks cannot write more than 20% of their new home loans to borrowers whose total debt is more than six times their gross household income (a debt-to-income, or DTI, ratio above 6). If your total debt stays below six times your income, this cap does not affect you. If you are a high-DTI borrower, you may find fewer lenders willing to stretch.
The levers that genuinely move your borrowing power
You have more control than you think. In rough order of impact:
| Lever | Why it helps |
|---|---|
| Get a lower interest rate | Lower assessed repayments. Each 0.5% off your rate can add roughly $15,000 to $25,000 of borrowing power. |
| Reduce or close credit cards | Lenders count the full limit as potential debt, not the balance. |
| Pay down personal and car loans | Frees up monthly surplus directly. |
| Increase reliable income | More surplus to service the loan. |
| Choose a longer loan term | Lower assessed repayments (though more interest over time). |
Notice the first lever: the rate you are offered does not just affect what you pay, it affects how much a lender will let you borrow in the first place. That is one more reason to shop hard on rate.
Why two lenders can give very different numbers
Borrowing power is not standard across the market. Lenders use different living-expense benchmarks, treat bonus and rental income differently, and apply their policies in their own way. It is completely normal for one lender to offer $650,000 and another $750,000 on identical financials. This is exactly where a broker adds value, by knowing which lenders are most generous for your profile.
The bottom line
Your borrowing power is your income and expenses, filtered through a deliberately conservative 3% buffer and (for high-debt borrowers) a DTI cap. The good news is that the levers are within reach: trim your debts, tidy your spending, and chase a sharp rate. Then get a proper assessment, because the right lender can make a real difference.