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How Much Can You Actually Borrow? The Real Answer

Why your borrowing power isn't what you think — APRA's 3% buffer, HEM, after-tax income, debts, and the levers that genuinely move your maximum loan in 2026.

Published: 2 May 2026Updated: 12 May 2026By LoanGorilla EditorialFact Checked

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How Much Can You Actually Borrow? The Real Answer (Not the Calculator Estimate)

Most Australians overestimate their borrowing power by 20–40%. The bank's online calculator gives you a number that feels generous — then your actual application comes back lower. Here's why: lenders don't assess you at today's rate. They stress-test you at your contracted rate plus a 3% serviceability buffer, meaning on a 5.72% loan you're assessed as if you're paying 8.72%. That single fact wipes tens of thousands off what you thought you could borrow. This guide breaks down exactly how banks calculate your limit — and what you can do about it.

Why Your Borrowing Power Isn't What You Think

The "10× your salary" rule is a myth. So is the "6× income" version. Borrowing power isn't a multiplier of your gross income — it's the residual number left after lenders have deducted taxes, living expenses, existing debt repayments, and a significant rate buffer.

A common assumption: "I earn $150,000, so I can borrow $1.5 million." The real number for a single applicant on $150K — with no dependants, no debt, and average living expenses — is closer to $700,000–$750,000. That's less than half the folklore number.

Why? Three forces are crushing the figure before it reaches you:

After-tax income, not gross. The bank starts with your net pay, not your salary. On $150K, that's roughly $107,000 after tax. Some lenders use gross with a tax addback, but the effective result is the same.
The HEM benchmark. The Household Expenditure Measure (HEM) is a minimum living cost benchmark maintained by the Melbourne Institute. Lenders apply it (or your declared expenses if higher) as a monthly deduction against your income. For a single person in a capital city, HEM in 2026 runs roughly $2,000–$2,500/month. For a couple with two kids, it's closer to $4,500–$5,000/month.
The APRA serviceability buffer. Every lender regulated by APRA (Australian Prudential Regulation Authority) must assess your ability to repay at your actual rate plus 3%. At a 5.72% average variable rate (May 2026), that means lenders check whether you can handle 8.72% — nearly double the RBA's current 4.35% cash rate.

The gap between what you earn and what banks will lend isn't a trick. It's three separate mathematical deductions stacked on top of each other.

How Banks Calculate Borrowing Power

The formula isn't secret. Here's how it actually works.

Step 1: Calculate net monthly income Gross salary, minus tax, plus any reliable secondary income (overtime at 80%, rental income at 80%, bonuses at 50–80% depending on lender).

Step 2: Deduct monthly living expenses The higher of your declared expenses or the HEM benchmark for your household type. Banks are legally required under responsible lending obligations to use real figures, not just HEM — but in practice, many applicants under-declare and lenders fall back to HEM.

Step 3: Deduct existing debt repayments Every existing liability reduces your borrowing power dollar-for-dollar. A $400/month car loan repayment doesn't just cost you $400 — it removes roughly $60,000–$80,000 from your maximum loan. The maths: that $400/month is what a lender would charge on a $60K–$80K balance at the assessed rate.

Step 4: Apply the serviceability buffer Repayments on your proposed new loan are calculated at contracted rate + 3%. At 5.72%, that's 8.72%.

Step 5: Check the DTI ratio Debt-to-income (DTI) ratio is total debt (including the new loan) divided by gross annual income. APRA has flagged DTI above 6× as a systemic risk indicator. Individual lenders have their own hard limits: NAB caps at 8× DTI, ANZ caps at 7.5× DTI. If you earn $150K and want to borrow $1.1M, your DTI is 7.3× — that's a no from ANZ, a possible yes from NAB.

The serviceability buffer and the DTI cap are two separate tests. You need to pass both. Most borrowers hit the buffer test first; higher-income borrowers in expensive cities sometimes hit the DTI cap.

The APRA Serviceability Buffer Explained (And the 2026 Political Debate)

The 3% serviceability buffer means lenders must confirm you can still afford your repayments if rates rise 3 percentage points above your contracted rate. It's not a theoretical worst case — it's a legally mandated floor for every APRA-regulated lender in Australia.

In practice: On a $600,000 loan over 30 years at 5.72%, your actual monthly repayment is approximately $3,490. Assessed at 8.72%, lenders calculate your repayment as approximately $4,720/month. That $1,230/month gap is what the buffer costs you in borrowing capacity.

History of the buffer:

2014: APRA introduced the floor at 2%
2019: Buffer reduced to 2.5% during the rate-cutting cycle
October 2021: APRA lifted the buffer to 3% as property prices surged during record low rates

The 2025–2026 political debate: During the 2025 federal election campaign, the Coalition proposed cutting the serviceability buffer from 3% to 2.5%. Their argument: rates have risen substantially since 2021, and the buffer is compounding housing affordability pressure. APRA reviewed the policy but held the buffer at 3% as of May 2026. The RBA's May 2026 rate rise to 4.35% — reversing the 2025 easing cycle — made APRA even less likely to reduce the buffer in the near term.

What a 0.5% cut would mean: On a $600,000 loan, reducing the buffer from 3% to 2.5% would increase borrowing capacity by approximately $30,000–$50,000 for a median-income earner. Significant — but not a housing affordability fix.

Borrowing Power by Income — Indicative Table

These figures assume: single applicant, PAYG employee, no existing debt, no dependants, average living expenses at HEM benchmark, 30-year loan term, assessment rate 8.72% (5.72% contracted + 3% buffer). Joint income figures assume two equal-income earners.

Gross Income	Single — Indicative Range	Joint (Combined) — Indicative Range
$80,000	$350,000 – $400,000	$600,000 – $700,000
$100,000	$450,000 – $500,000	$750,000 – $850,000
$120,000	$550,000 – $600,000	$950,000 – $1,050,000
$150,000	$700,000 – $750,000	$1,200,000 – $1,300,000
$200,000	$950,000 – $1,000,000	$1,600,000 – $1,750,000

Caveats that move these numbers significantly:

Each dependant reduces capacity by approximately $30,000–$60,000
A $10,000 credit card limit reduces capacity by approximately $50,000–$60,000
A $50,000 HECS balance reduces capacity by approximately $10,000–$20,000
Self-employed income assessed differently (see below)

These are indicative ranges only. Actual limits vary by lender, credit history, and declared expenses. Use LoanGorilla's borrowing power calculator for a lender-specific estimate.

What Reduces Your Borrowing Power?

Every item on this list is something banks check — and most applicants are surprised by how hard some of them hit.

Credit card limits (not balances) Banks count credit card limits as if they're fully drawn — even if your balance is $0. A $10,000 credit card limit adds roughly $600/month to your assessed monthly commitments (calculated as approximately 3.8% of the limit per month under APRA guidance). That reduces your borrowing capacity by approximately $50,000–$60,000. Two cards with $15,000 limits combined could cost you $90,000–$120,000 in borrowing power.

HECS/HELP debt Your HECS balance isn't just a future tax obligation — lenders count it as a current liability. The mechanism: HECS repayments are automatically deducted via your tax return once your income exceeds the compulsory repayment threshold ($54,435 in 2025–26). Lenders treat this as a recurring income reduction. A $50,000 HECS balance at a 4% repayment rate reduces your assessed income by approximately $2,000/year — lowering borrowing power by roughly $10,000–$20,000 depending on the lender.

Buy Now Pay Later (BNPL) Afterpay, Zip, Humm — lenders increasingly ask for BNPL statements. Active accounts with limits are treated similarly to credit cards: the credit limit, not just the current balance, is the number that matters.

Number of dependants Each dependent child reduces your borrowing power by approximately $30,000–$60,000. Banks apply higher HEM tiers for larger households. A couple with three kids faces dramatically higher living expense benchmarks than a childless couple on the same income.

Employment type

PAYG employees: Straightforward. Two recent payslips and a group certificate.
Self-employed: Minimum two years of tax returns required. Lenders typically use the lower of the two years' net profit — or average the two years. If Year 1 was $120K and Year 2 was $95K, most lenders use $95K. Add-backs for depreciation vary by lender.
Casual/contract workers: Usually need 12 months continuous employment in the same role or industry. Some lenders require 24 months.

What Increases Your Borrowing Power?

These are concrete actions — not wishful thinking.

Pay off AND close credit cards Reducing a credit card balance to zero doesn't help until you close the account. A zero-balance $20,000 credit card still counts as a $20,000 liability. Call the bank, pay it off, close it, get written confirmation. Then wait for the credit file to update (30–45 days) before applying.

Reduce BNPL and personal loans Pay down and close BNPL accounts. Personal loans with 12–24 months remaining have an outsized effect on borrowing power because lenders assess the remaining balance as a commitment.

Joint applications Combining incomes roughly doubles borrowing power — but combining liabilities (debts, dependants) applies too. A joint application only helps if the second applicant adds more income than they add in existing debt and expenses.

Include rental income If you own an investment property, 80% of gross rental income counts toward your assessable income. On $30,000/year in rent, that's $24,000 added to your income base — worth approximately $120,000–$150,000 in additional borrowing capacity.

Extend the loan term to 30 years A 30-year term generates lower monthly repayments than a 25-year term — which means the bank's serviceability calculation works in your favour. Going from 25 to 30 years increases borrowing capacity by approximately 10–15%. The trade-off is significant: on a $600,000 loan, an extra 5 years costs roughly $80,000–$100,000 in additional interest over the life of the loan. But if you need the capacity now and plan to refinance later, it's a lever worth knowing.

Pre-Approval: The Only Way to Know for Sure

Online calculators — including the banks' own tools — are estimates. Pre-approval is the only number you can take to an auction.

Indicative pre-approval (conditional approval) Most bank websites offer this. It's a soft credit check and a rough calculation based on declared figures. It gives you a number, but it's not binding and not verified. Sellers and agents know it means little.

Formal (assessed) pre-approval A full credit assessment with verified income documents, credit file check, and lender sign-off. This is the number that matters. A formal pre-approval typically lasts 60–90 days from issue date, after which you need to reapply. Most lenders offer 90 days with one 90-day extension.

What happens if rates change during pre-approval? If rates rise between pre-approval and settlement, your lender may reassess. A 0.25% rate rise mid-application can reduce your approved limit by $10,000–$30,000 depending on loan size. Some lenders allow rate lock for a fee ($500–$1,500) to protect against this.

If you're seriously looking, get a formal pre-approval through a broker who can check multiple lenders simultaneously — rather than leaving a hard enquiry on your credit file for every bank you approach individually.

Borrowing Power vs Buying Power — The Deposit Equation

Your maximum loan isn't your maximum purchase price. Add your deposit, then subtract costs.

The formula: Buying Power = Deposit + Maximum Loan − Purchase Costs

Purchase costs in a typical Australian state include:

Stamp duty (varies by state, property price, and first home buyer status)
Conveyancing: $1,500–$2,500
Building and pest inspection: $400–$800
Mortgage registration fees: $150–$300
Lender's mortgage insurance (if deposit < 20%)

Worked example — 2026 average Australian borrower:

Deposit saved: $173,000
Maximum loan (formal pre-approval): $675,000
Gross buying power: $848,000
Less purchase costs (stamp duty VIC on $848K: ~$45,000 + other costs ~$5,000): $50,000
Net target property price: ~$798,000

LMI consideration: If your deposit is less than 20% of the purchase price, Lenders' Mortgage Insurance (LMI) applies. LMI protects the bank — not you — and typically costs $8,000–$25,000 on a $600,000–$700,000 loan at 85–90% LVR. It can be capitalised into the loan, which further reduces your effective borrowing capacity. To avoid LMI, you need a 20% deposit, a guarantor, or eligibility under the First Home Guarantee (government scheme allowing 5% deposit with no LMI).

Frequently Asked Questions

How much can I borrow on a $100,000 salary in Australia?

A single PAYG applicant earning $100,000 gross with no existing debt, no dependants, and average living expenses can borrow approximately $450,000–$500,000 in 2026. This assumes assessment at 8.72% (5.72% contracted rate + 3% APRA buffer). Add a second income, remove a credit card, or reduce your HECS balance and the number moves up. Add dependants or existing debts and it moves down.

What is the APRA serviceability buffer and how does it affect my borrowing power?

The APRA serviceability buffer requires lenders to assess your loan repayments at your contracted interest rate plus 3 percentage points. At the current average variable rate of 5.72%, lenders calculate whether you can afford repayments at 8.72%. This reduces borrowing capacity by roughly 20–25% compared to being assessed at the actual rate. APRA held the buffer at 3% in 2026 despite Coalition proposals to reduce it to 2.5%.

Does my HECS debt affect how much I can borrow?

Yes. Lenders treat your HECS/HELP repayment threshold as a reduction in your net income. A $50,000 HECS balance reduces your borrowing power by approximately $10,000–$20,000, depending on your income and which lender you're applying with. The higher your HECS balance and income, the larger the hit. Some lenders are more generous than others in how they model HECS obligations.

How do credit card limits affect my borrowing capacity?

Banks count your credit card limit as if it's fully drawn — regardless of your actual balance. A $10,000 limit adds roughly $600/month to your assessed monthly commitments, reducing your borrowing capacity by approximately $50,000–$60,000. To remove this drag, you need to pay off the card and close the account. Reducing the balance to zero but keeping the card open doesn't help.

Can I borrow more if I have a joint application?

Yes — combining two incomes roughly doubles borrowing power, assuming both applicants have clean credit and manageable existing debt. A joint income of $200,000 (two people at $100,000 each) can support borrowing of approximately $750,000–$850,000 versus $450,000–$500,000 for a single applicant. Keep in mind that shared liabilities — joint debts, combined dependants, shared living expenses — reduce the uplift if either applicant brings significant obligations.

How do lenders calculate borrowing power for self-employed applicants?

Self-employed applicants need a minimum of two years' tax returns, plus business financial statements. Lenders typically use the lower of the two years' net profit, or average both years. Add-backs (depreciation, one-off expenses) are accepted by some lenders but not all. If your business income has been rising, some lenders use the most recent year — ask your broker which lenders do this. Being self-employed doesn't automatically mean a lower limit, but it does mean more documentation and less flexibility on income presentation.

What's the difference between pre-approval and formal approval?

Indicative (conditional) pre-approval is a quick calculator-based estimate — it's not verified and not binding. Formal (assessed) pre-approval involves full verification of income documents, a hard credit enquiry, and lender sign-off. Formal pre-approval lasts 60–90 days and gives you actual buying confidence at auction. Use formal pre-approval from a broker, not the bank's online tool, if you're actively searching for a property.

Does rental income count toward my borrowing capacity?

Yes — lenders count 80% of gross rental income as assessable income. If you earn $2,000/month in rent, $1,600/month counts toward your income. On $24,000 assessed rental income per year, this can add approximately $100,000–$150,000 to your borrowing capacity, depending on lender and your expense profile. The 20% haircut accounts for vacancy risk and maintenance costs.

How can I increase my borrowing power before applying?

Four concrete steps: (1) Close credit cards you don't need — not just pay them off, close them. (2) Pay down or close BNPL accounts. (3) Reduce personal loan balances. (4) If you're self-employed, lodge both years of tax returns showing consistent income before applying. Each $10,000 in credit card limits you close adds approximately $50,000–$60,000 to your capacity. Combining these actions can realistically move your limit by $100,000–$200,000.

Why does my borrowing power from the bank's calculator differ from the broker's estimate?

Two main reasons. First, online calculators use simplified inputs and often don't apply the HEM benchmark at the correct household tier or model your HECS repayment accurately. Second, different lenders have materially different policies. NAB and ANZ have different DTI caps. Some lenders are more generous with self-employed income, rental income, or HECS modelling than others. A broker who checks your profile across 20+ lenders will find the one whose policy best fits your financial situation — the bank's calculator only knows their own policy.

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loangorilla.com.au is an Australian Credit Representative (ACR) of Access Lending Group, Australian Credit Licence 531308. Rates and information are current as of May 2026 and subject to change. This guide is general information only and does not constitute financial advice.

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