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.
This is for anyone working out what they can spend before they start looking. First home buyers, upgraders, and investors all ask us the same question early: how much can we borrow? It is the most common question we hear, and the honest answer is that it depends on more than your income. This guide walks through what lenders measure, what has changed in 2026, and why the number moves between lenders.
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.
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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.
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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.
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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.
At today's rates, with the 3% buffer applied and HEM set against their household, they might service somewhere in the region of $1.1m to $1.4m depending on the lender. Closing the unused card could add tens of thousands. Choosing the lender whose policy suits their income mix could move the top of that range further again. Same couple, same income, a different outcome.
The figures here are illustrative. The point is the spread, not the precise 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.
[CALCULATOR LINK — Suggested build: Alcove Borrowing Power estimator. Model a realistic range from income, debts, and household, with the 3% buffer built in.]
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.
Over twelve months the cash rate fell to its lowest point of the cycle, then climbed straight back. On an $800,000 loan that round trip added about $4,577 a year to repayments.
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