Borrowing capacity is the most common question we hear. Here's what lenders measure in 2026, why the 3% buffer matters most, and why two lenders can land more than $200,000 apart on the same household.
Most people we meet have a number in their head. It is almost never the number a lender lands on, and it is almost never the same across two lenders. How much can we borrow is the most common question we hear, from first home buyers, upgraders, and investors alike. The honest answer is that it depends on far more than your income. This guide walks through what lenders measure, what changed in 2026, and why the number moves from one lender to the next.
Your borrowing capacity is the most a lender will let you borrow based on their read of your finances. It is a ceiling. It is not a recommendation, and it is not the number you should aim to spend.
Borrowing to your limit leaves no room for a rate rise, a quieter month of income, or an unexpected bill. A common rule of thumb is to keep home loan repayments at or below about a third of your gross household income. The right figure for you sits inside your wider plan, not at the top of what a calculator returns.
The other thing to know up front: there is no single capacity number. Two lenders looking at the same household can land more than $200,000 apart. That gap is where good advice earns its place.
Every lender runs a serviceability test. The shape is the same across the market, even though the inputs differ.
They start with your income. Then they subtract your living expenses, your existing debts, and the repayments on the new loan. What is left is your surplus. If the surplus holds up at a stressed interest rate, the loan services. The size of loan that still leaves a surplus is your capacity.
Three things drive that calculation harder than people expect.
Lenders do not test you at the rate you will pay. They add a buffer on top. APRA requires banks to assess new borrowers at their current rate plus three percentage points, and that buffer has held at 3% through 2026.
If your loan rate is 6.5%, the bank checks that you could still afford repayments at about 9.5%. This single rule is the biggest reason most people can borrow less than they assume. It is also why your capacity falls when rates rise, before your own repayments change at all.
As a rough guide, every 0.25% move in rates shifts borrowing capacity by about 2%. A full percentage point of rate rises can take close to 8% off what you can borrow. That is why the number you were quoted six months ago may not be the number today.
Lenders take the higher of your declared living expenses or a benchmark called the Household Expenditure Measure (HEM). HEM estimates a reasonable minimum spend based on your income, location, and household size.
Through 2025 and 2026, HEM figures were revised up as grocery, insurance, and utility costs climbed. Higher benchmarks mean a lower assessed surplus, which trims capacity even for households whose own spending has not changed. Every dependent also lifts your assessed expenses and pulls the number down.
This is why we ask for your bank statements as part of the assessment. We check your declared spending against what leaves your account each month, then talk through what we find. It is not about catching you out. We have a responsible lending obligation to make sure the loan you take on is one you can sustain, and that conversation is how we get there.
Your current commitments reduce capacity, and some count for more than borrowers expect.
A credit card is assessed on its limit, not its balance. A $10,000 card you never use can still cut your capacity by tens of thousands. Car loans, personal loans, and buy-now-pay-later accounts all reduce your surplus too.
HECS and HELP debt changed in 2026, and the change works in borrowers' favour. From 30 September 2025, banks were directed to leave HELP debt out of the debt-to-income figure they report. Lenders can also, by exception, set HECS repayments aside in their assessment where you are on track to clear the balance inside about a year. If you have a small HECS balance close to paid off, it may no longer hold your borrowing back the way it once did.
Two shifts are worth knowing if you borrowed before and the numbers look different now.
The cash rate moved. The RBA lifted rates three times in the first half of 2026 before holding at 4.35% in June. Higher rates lift the assessment rate, so capacity across the market is tighter than it was in 2025.
There is also a new ceiling on high debt-to-income lending. From February 2026, banks can write no more than 20% of their new loans to borrowers whose total debt is more than six times their income. For most households this changes nothing. For borrowers stretching on a large loan against a modest income, it can cap the deal even when the repayments would service on paper.
A few things trip people up before they speak to us.
Trusting one bank's calculator as the answer. It tells you what that lender might do, not what the market will do.
Treating the maximum as the budget. The ceiling and the sensible number are rarely the same.
Forgetting the costs around the loan. Stamp duty, lenders mortgage insurance, and a cash buffer all sit outside the loan amount and shape what you can proceed with.
Leaving an unused credit card open while applying. Reducing or closing limits before you apply can lift capacity at little real cost.
Take a couple earning $200,000 between them, with two children and a $15,000 credit card limit they rarely touch. One of them earns a base salary plus a bonus that has moved around from year to year.
With the 3% buffer applied and HEM set against their household, the first lender counts only half the bonus and lands them at about $1.1m. A second lender, comfortable using the full bonus given a steady three-year history, gets to about $1.35m on the same income. Neither is wrong. They are reading the same payslips through different policies.
Closing the unused credit card could add tens of thousands on top. Same couple, same income, a spread of more than $200,000 depending on who assesses them.
The figures here are illustrative. The point is the spread, not the precise number.
The serviceability test sounds tidy until your income does not fit a neat box. These are the situations we are asked about most.
I'm a casual employee. Can I still borrow?
Yes. Most lenders want to see you have been with the same employer for at least six to twelve months, and some will look at time in the same industry rather than the same job. They tend to shade casual income, counting it over about 46 to 48 weeks rather than a full year to allow for unpaid breaks. Length and consistency matter more than the casual label itself, and the right lender choice can lift both how much of your income counts and how much you can borrow.
I've recently gone self-employed. Is it too early?
Not necessarily, though it narrows the field. Many lenders want two years of tax returns. Some will consider you after one full year of trading with clean records and strong BAS, and alt-doc options can use business bank statements and an accountant's letter where returns are not yet lodged. Those options usually come with a lower maximum loan size and a slightly higher rate. If you are close to lodging your next return, a short wait can open up better pricing, so it is worth a conversation before you apply.
I'm on maternity or parental leave. What happens to my income?
This is one of the biggest swings between lenders. Some assess your full pre-leave salary if you provide a return-to-work letter from your employer confirming your return date, role, hours, and salary. Others count only your reduced leave income, which can cut borrowing power by $200,000 or more. The return-to-work letter is the single most useful document here. Lining up the right lender and the right paperwork is what separates the two outcomes.
I'm on probation in a new job. Should I wait?
Often you do not have to. Many lenders will accept you on probation, especially if you have stayed in the same industry or moved up in the same field. It gets tighter if you are borrowing above 80% and need lenders mortgage insurance, where some lenders prefer probation completed first. A recent job change is rarely a dealbreaker on its own.
My pay includes overtime, bonus, or commission. Does it count?
Some of it, and the treatment varies. Lenders commonly count about 80% of overtime once you can show six to twelve months of it, and they often average a bonus or commission over two years before applying a similar reduction. Certain roles, such as essential services, are treated more generously. Because every lender draws these lines differently, variable income is one of the clearest cases where choosing the right lender changes the number.
Before you fall for a property, it is worth knowing three numbers: what you can borrow, what you should borrow, and what the purchase will cost you all in. They are not the same, and the gap between them is where most of the value sits.
Our Borrowing Power calculator gives you a realistic range from your income, debts, and household, with the 3% buffer built in. Treat it as a useful starting point, not the final word.
If you would like the real version rather than a calculator's estimate, we are glad to run your borrowing capacity across a panel of lenders and show you where the differences sit. You can also see where the broader market is sitting in our Lending Landscape dashboard.
The information here is general in nature and does not take your personal circumstances into account. Lending criteria, rates, and policy settings change. Speak to us for advice specific to your situation.
Households are carrying one of the heaviest interest burdens on record while incomes sit a decade behind. If getting ahead feels out of reach this year, the data says the season changed, not you.
Guide · clientsI joined Terry Condon to talk through what the proposed tax changes and an uncertain rate outlook mean for home buyers and investors. The short version: know your numbers, hold a buffer, and avoid knee-jerk moves.
Thirty minutes, no cost, no obligation. We'll listen, sketch the options, and tell you straight whether we can help.