How Much Can I Borrow? What Lenders Actually Assess in 2026

“How much can I borrow?” is usually the first question a client asks me, and it is the right one — your borrowing capacity determines which suburbs are realistic and which are not.

The answer is more involved than a multiple of your salary. Here is how lenders actually build the number in 2026, and which levers genuinely move it.

The Buffer That Surprises Almost Everyone

The single most misunderstood part of borrowing capacity is this: lenders do not assess you at the rate you will pay.

Under Prudential Standard APS 220, and as set out in APRA’s guidance in APG 223 Residential Mortgage Lending, authorised deposit-taking institutions must apply a buffer over a loan’s interest rate of at least 3.0 per cent when assessing serviceability, unless APRA determines otherwise.

In practice, if your actual rate is 6.00 per cent, the lender tests whether you could afford repayments at around 9.00 per cent.

The effect is significant. On a $700,000 loan over 30 years:

• Repayments at an actual rate of 6.00 per cent are approximately $4,197 per month.
• Repayments assessed at 9.00 per cent are approximately $5,632 per month.

You have to demonstrate you could service the higher figure. That is roughly $1,400 a month of capacity you must show but will not actually spend at current rates.

This is not a lender being difficult. It is a regulatory requirement designed to make sure borrowers can withstand rate rises — and given the cash rate has moved three times in 2026 alone, it is a policy that has proven its worth.

The Building Blocks of a Serviceability Assessment

Assessable income

Not all income is treated equally. Base salary is generally taken in full. Overtime, bonuses, commissions and allowances are frequently shaded — many lenders count 80 per cent, and some require a two-year history before counting them at all.

If you are self-employed, most lenders want two years of tax returns and financial statements, though some will work from one year in the right circumstances. Rental income is typically assessed at 70 to 80 per cent to allow for vacancy and costs.

This is one of the clearest areas where lender choice matters. Two lenders can assess the same income and arrive at materially different numbers.

Living expenses and the HEM benchmark

Lenders ask about your living expenses, then compare your declared figure against the Household Expenditure Measure — a benchmark based on ABS survey data, adjusted for your income, location and household size. They generally assess on the higher of your declared expenses or the benchmark.

Understating your expenses does not help you. It gets picked up when the lender reviews your statements, and it damages your credibility on the file.

Existing debts — and the credit card trap

This is where I most often find easy wins.

Credit cards are assessed on your limit, not your balance. A card with a $20,000 limit and a zero balance is still treated as a commitment, typically at around 3 per cent of the limit per month — roughly $600 a month of assessed expense for a card you never use.

That single unused card can reduce borrowing capacity by tens of thousands of dollars. Reducing the limit or closing the account before you apply is often the fastest way to improve your position.

Personal loans, car loans, buy-now-pay-later facilities and HECS-HELP repayments all reduce capacity too. If you are close to paying off a HECS debt, clearing it before applying can be worthwhile — though the maths depends on the balance, so check before you act.

Dependants

Each dependant increases your assessed living expenses. It is not something you can change, but it does explain why two households on identical incomes can receive quite different answers.

What Actually Moves the Number

In order of how often it makes a real difference:

1. Reduce or close credit card limits. The highest-impact change most people can make, and it takes a phone call.
2. Clear small consumer debts. Paying out a car loan can free up more capacity than the repayment itself suggests.
3. Choose the right lender. Policies on overtime, bonuses, casual income, self-employment and rental income vary widely. Matching your income profile to a lender that treats it favourably is genuinely where a broker earns their keep.
4. Extend the loan term. A 30-year term rather than 25 lowers assessed repayments — though it increases total interest paid, so it is a trade-off rather than a free gain.
5. Increase your deposit. Beyond reducing the loan, crossing the 20 per cent threshold avoids lenders mortgage insurance and can unlock better pricing.

Borrowing Capacity Is a Ceiling, Not a Target

This is the advice I feel most strongly about.

Just because a lender will approve $850,000 does not mean you should borrow it. The serviceability buffer confirms you could survive higher rates — it says nothing about whether you would enjoy the years spent doing so.

I encourage clients to work out the repayment they are genuinely comfortable with, then work backwards to a loan amount. Borrowing to your absolute ceiling leaves no room for a rate rise, a car repair, a period out of work, or a change in family circumstances. Those things happen.

Get an Indicative Figure

Our borrowing power calculator will give you a ballpark based on your income and commitments, and the loan repayment calculator will show what those repayments look like month to month. Treat both as a starting point — a lender’s actual assessment depends on its specific policies.

If you are buying your first home, our first home buyer service page covers the deposit schemes that can help you get in sooner, and our guide to stamp duty and the 5% Deposit Scheme in NSW walks through the upfront costs.

Why a Broker Helps Here

The most useful thing I do at this stage is avoid wasted applications. Every credit enquiry leaves a mark on your file, and a string of declines makes the next lender more cautious.

Rather than applying and hoping, I assess your position against the policies of the lenders on my panel first, and we approach the ones where your profile actually fits. That usually means a better answer, and always means fewer knocks on your credit file.

Want to talk through what this means for your situation? Call David on 0417 676 191 or get in touch via our contact form.

This article is general information only and does not take into account your objectives, financial situation or needs. Figures are illustrative and current as at the date of publication. Interest rates, lender policies and government scheme rules change — please seek advice specific to your circumstances before acting.

Sources

• Australian Prudential Regulation Authority, APG 223 Residential Mortgage Lending.
• Australian Prudential Regulation Authority, Prudential Standard APS 220 Credit Risk Management.
• Reserve Bank of Australia, Cash Rate Target.