How much you can borrow depends on your income, your living expenses, your existing debts and the interest rate the lender uses to test your repayments, which is your actual rate plus at least 3 percentage points. With average variable rates around 6.63% in October 2026, most lenders are assessing new loans at 9.6% or more. Your deposit then decides how much property that borrowing buys, and whether you’ll pay lenders mortgage insurance.
How lenders work out your borrowing power
Every lender runs its own calculator, but they all follow the same steps:
- Income. Your after-tax income from salary, plus a share of less certain income such as overtime, bonuses, commissions and rent. Lenders often count only 80% of variable income and 70% to 80% of rent.
- Living expenses. The higher of what you declare and a benchmark for a household like yours, such as the Household Expenditure Measure.
- Existing debts. Repayments on other loans, plus a monthly allowance for every credit card limit, whether or not you use it.
- The test rate. The new loan’s repayments are calculated at your rate plus APRA’s 3 percentage point serviceability buffer, usually over 30 years.
- Debt-to-income. Banks can only make a limited share of new loans at six times income or more, so very high borrowing relative to income is harder to get approved.
What’s left after expenses and debts is the most you can put towards repayments at the test rate. That figure sets your borrowing limit.
If you are buying before you sell, lenders also check you can afford the end debt on a bridging loan, not just the peak debt.
How the test rate changes what you can borrow
| Repayments you can afford each month | Assessed at 8.63% | Assessed at 9.63% | Assessed at 10.63% |
|---|---|---|---|
| $3,000 | About $386,000 | About $353,000 | About $325,000 |
| $4,000 | About $514,000 | About $470,000 | About $433,000 |
| $5,000 | About $643,000 | About $588,000 | About $541,000 |
Our calculations over a 30-year term. 9.63% is the 6.63% average owner-occupier variable rate (Canstar, 2 October 2026) plus the 3% buffer. Each 1% rise in rates cuts borrowing power by about 8%, which is why the 2026 rate rises have reduced what buyers can spend.
Debts and credit cards reduce your limit
Lenders count your credit card limit, not your balance, usually at about 3% to 3.8% of the limit as a monthly expense. At a 9.63% test rate:
| Commitment | Monthly amount lenders count | Approximate reduction in borrowing power |
|---|---|---|
| $10,000 credit card limit | About $380 | About $45,000 |
| $600 a month car loan | $600 | About $71,000 |
| HECS-HELP debt | A percentage of income, depending on your income | Varies |
Our calculations. Closing unused cards, cutting limits and paying off small loans before you apply can lift your borrowing power more than a pay rise.
Your deposit and LVR
Borrowing power tells you how much a lender will lend; your deposit decides how much property you can buy with it. Borrowing 80% or less of the value usually avoids lenders mortgage insurance and gets sharper rates. Eligible first home buyers can buy with a 5% deposit without LMI under the First Home Guarantee, subject to price caps. See first home buyer rates.
How to increase what you can borrow
- Cut credit card limits and close cards you don’t need.
- Pay off small debts, such as car loans or buy now pay later accounts.
- Reduce discretionary spending in the three months before you apply, as lenders review your statements.
- Choose a 30-year loan term. It lowers the assessed repayment. You can still repay faster.
- Apply jointly if you’re buying with a partner.
- Compare lenders. Policies on rent, bonuses and self-employed income vary, so the same application can borrow different amounts. See how lenders assess loans.
Borrowing the maximum isn’t always wise. Check what the repayments would be at today’s rate and 2% higher with our mortgage calculator before you start buying.
Frequently asked questions
How do lenders calculate borrowing power?
They take your after-tax income, subtract your living expenses (the higher of what you declare and a benchmark), subtract repayments on existing debts and an allowance for credit card limits, then work out what loan you could repay with what’s left at your rate plus a 3 percentage point buffer, usually over 30 years.
Does a credit card limit reduce how much I can borrow?
Yes. Lenders count about 3% to 3.8% of each card’s limit as a monthly expense, even if you pay the card off in full. A $10,000 limit can reduce your borrowing power by around $45,000, so cutting or closing unused cards before you apply can make a real difference.
What is the APRA serviceability buffer?
It’s the margin lenders add to your interest rate when testing whether you can afford a loan. APRA expects lenders to assess loans at least 3 percentage points above the actual rate, so a 6.63% loan is tested at 9.63%. APRA kept the buffer at 3% at its May 2026 review.
Sources
- APRA, Macroprudential policy settings, May 2026
- Canstar, Average home loan interest rates, as at 2 October 2026
- ASIC Moneysmart, Choosing a home loan
- Housing Australia, First Home Guarantee
General information only. It does not consider your objectives, financial situation or needs and is not credit, tax or financial advice.