How Much Can I Borrow? Understanding Mortgage Serviceability in Australia

"How much can I borrow?" is the most common question people ask when they start thinking about buying a home. It is also the question most people get the wrong answer to.

Not because the calculators are broken, but because there is no single answer. Every lender in Australia calculates your borrowing power differently. Two banks can look at the exact same financial profile — same income, same expenses, same deposit — and come back with borrowing amounts that differ by tens of thousands, sometimes hundreds of thousands of dollars.

Understanding why that happens, and how to navigate it, is one of the most important things you can learn before you start your property search.

What Is Mortgage Serviceability?

Serviceability is the lender's assessment of whether you can afford to repay a loan. It is the single most important calculation in the entire home loan process, because it determines the maximum amount any given lender will offer you.

At its core, it is a straightforward concept: take your income, subtract your expenses and existing debts, and see if what is left over is enough to cover the repayments on the loan you are applying for.

But the detail matters enormously, because lenders differ on almost every input in that calculation.

Why Do Different Lenders Give Different Borrowing Amounts?

This is the part that surprises most people. You might assume there is a standard formula that all banks use, but there is not. Here is where the differences show up:

How Do Lenders Treat Different Types of Income?

If you earn a base salary, most lenders will take it at face value. But the moment your income has any variability — commissions, bonuses, overtime, casual employment, self-employment income, rental income, government benefits — the differences between lenders become significant.

Some lenders will include 100% of regular overtime. Others will only count 80%. Some will accept one year of tax returns for self-employed borrowers. Others require two. Some will include 100% of rental income from an investment property when calculating serviceability. Others will shade it to 80% to account for vacancy and expenses.

These are not small differences. If you earn $30,000 a year in overtime and one lender counts all of it while another counts 80%, that gap alone could translate to $30,000 or more in borrowing capacity.

How Do Lenders Assess Your Living Expenses?

Lenders compare your declared living expenses against a benchmark called the Household Expenditure Measure (HEM). HEM is a statistical measure of what a typical household spends based on size and income level.

If your declared expenses are lower than the HEM benchmark, most lenders will use the HEM figure instead. If your expenses are higher than HEM, they will use your actual figure. But the way lenders apply this benchmark varies. Some are stricter about accepting below-HEM declarations. Others will give you credit for genuinely low expenses if you can demonstrate it.

How Do Existing Debts Affect Your Borrowing Power?

This is where credit cards catch a lot of people out. Even if your credit card balance is zero, most lenders will assess you as if you have drawn the full credit limit. A credit card with a $10,000 limit that you never use could reduce your borrowing power by $30,000 to $50,000.

The same principle applies to buy now pay later accounts, personal loans, car leases, and HECS-HELP debt. Each lender factors these in slightly differently.

What Is the Buffer Rate and How Does It Affect Borrowing Power?

Since 2021, APRA has required all lenders to assess borrowers at a minimum buffer of 3 percentage points above the loan's interest rate. So if the actual rate on your loan is 6%, the lender is testing whether you can afford repayments at 9%.

This buffer is designed to protect borrowers from rate rises, and it is a major reason why the borrowing amount you see on a simple repayment calculator is much higher than what a lender will actually offer you. The calculator shows you what the repayments are at today's rate. The lender is stress-testing you at a much higher rate.

Some non-bank lenders use slightly different approaches to buffer rates, which is one reason borrowing power can vary across the market.

How Does Borrowing Power Vary in Practice?

Consider two people, both earning $120,000 per year, with $50,000 in savings and no existing debts.

One lender might assess their borrowing power at $620,000. Another might come back at $690,000. A third might land at $580,000.

Same person. Same income. Same deposit. Three different answers.

The difference comes down to how each lender treats the inputs — the expense benchmark they apply, the buffer rate methodology, the way they calculate available income. None of them are wrong. They just have different risk models.

This is why running a single calculator on a bank's website and treating that number as your borrowing power is a mistake. You are getting one lender's view, not the market's view.

What Can You Do to Maximise Your Borrowing Power?

Some of these are well known. Others are not.

Close unused credit cards and buy now pay later accounts. If you have credit facilities you do not use, close them before applying. The borrowing power impact is immediate and often substantial.

Pay down personal debts where possible. A $10,000 personal loan might reduce your borrowing power by $30,000 or more. Paying it off before you apply can make a meaningful difference.

Be accurate with your expenses. Under-declaring expenses will not help you — lenders will use the HEM benchmark if your declared figure is unrealistically low. But over-declaring can hurt you. Be honest and thorough, and your broker can help you categorise things properly.

Understand how your income is classified. If you are self-employed, make sure your tax returns and financial statements present your income in a way lenders can work with. This does not mean inflating anything — it means structuring your documentation clearly so lenders can see your true earning capacity.

Consider the impact of HECS-HELP. Your HECS debt is factored into serviceability. You cannot avoid this, but understanding how much it reduces your capacity helps you plan.

Get advice from a broker who runs the numbers across multiple lenders. This is the single most impactful thing you can do. A broker does not just pick one bank and hope for the best. They assess your profile against the criteria of multiple lenders to find where you get the best outcome.

What Is the Difference Between Borrowing Power and What You Should Borrow?

One important distinction: your maximum borrowing power is not necessarily the amount you should borrow.

Just because a lender will approve you for $700,000 does not mean that is the right number for your lifestyle. Lenders stress-test your repayments, but they do not know how you want to live. They do not account for your plans to renovate, start a family, take a career break, or travel.

Your broker can help you model different scenarios — what your repayments look like at different loan amounts, how much buffer you have if rates move, and what your cash flow looks like after the mortgage is paid each month. The goal is not to maximise the loan. It is to find the right balance between what you can borrow and what you are comfortable repaying.

What to Do Next

If you want to know where you stand, get a free assessment from Mage. We run your numbers across the market and tell you what you can borrow, what it will cost, and what that means for your property budget — without any impact on your credit score.

It is the fastest way to go from "I wonder what I could afford" to "here is my number."

Get your free assessment →

Frequently Asked Questions

Why do different banks offer different borrowing amounts?

Every lender has its own serviceability model — their own way of categorising income, assessing expenses against benchmarks like HEM, factoring in existing debts, and applying buffer rates. These differences mean two banks can look at the same financial profile and return borrowing amounts that differ by tens of thousands of dollars.

What is the APRA buffer rate?

Since 2021, APRA requires all lenders to assess your ability to repay at a minimum of 3 percentage points above the loan’s actual interest rate. If your loan rate is 6%, the lender stress-tests your repayments at 9%. This is why your borrowing power is significantly lower than what a simple repayment calculator might suggest.

Does HECS-HELP debt affect how much I can borrow?

Yes. Lenders factor your HECS-HELP debt into their serviceability calculation. The compulsory repayment amount reduces the income available for loan repayments, which in turn reduces your borrowing power. The exact impact depends on your income level and the lender’s assessment method.

How can I increase my borrowing power?

Close unused credit cards and buy now pay later accounts, pay down personal debts, ensure your expenses are accurately declared, and have your income documentation well organised. The most impactful step is working with a broker who can run your profile across multiple lenders to find where you get the highest borrowing capacity.

Should I borrow the maximum amount a lender will approve?

Not necessarily. Your maximum borrowing power is the most a lender will lend you, but it does not account for your lifestyle, future plans, or comfort with repayments. A good broker will help you model different scenarios so you can find the right balance between what you can borrow and what you are comfortable repaying.