How lenders decide what you can borrow

Two lenders can look at the same application and land more than $150,000 apart on what they will lend. Neither is wrong — they are applying different policies to the same facts. Understanding the mechanics tells you which levers are worth pulling before you apply.

Serviceability is the whole game

Every lender is answering one question: after your living costs and other commitments, is there enough left to make this repayment even if rates rise?

Roughly, the calculation runs:

1. Start with your net income — gross income after tax.
2. Subtract assessed living expenses.
3. Subtract repayments on other debts.
4. Whatever remains is your surplus, and it has to cover the new repayment calculated at a stressed rate.

The borrowing power calculator models this. Real lenders add far more policy detail, but the shape is the same.

The 3% buffer

APRA requires lenders to assess your loan at your actual rate plus at least 3%. Borrowing at 5.5% means being tested at 8.5% or higher.

This single rule is why borrowing power feels so much lower than it should. It is also why a small rate difference has an outsized effect: a lower product rate lowers the assessment rate too, which lifts the maximum you can borrow.

Income: not all of it counts

Lenders discount income they consider unreliable.

• Base salary — counted in full.
• Overtime and bonuses — commonly shaded to 80%, sometimes less, and usually requiring a two-year history.
• Commission — treated cautiously, averaged over two years.
• Rental income — typically shaded to 75–80% to allow for vacancy and costs.
• Self-employed income — usually the average of the last two years of tax returns, and the lower year may be used instead. If your business is growing, this hurts.
• Casual work — often needs 6–12 months in the same role.
• Government benefits — policy varies widely; some lenders exclude them.

If a large share of your income is variable, shop specifically for a lender whose policy suits your income shape. This is the single biggest source of variation between lenders.

Expenses: the benchmark floor

You will declare your living expenses. The lender will compare that figure to a benchmark — usually the Household Expenditure Measure — and use whichever is higher.

Declaring $1,200 a month for a family of four does not help you. It gets replaced by the benchmark and may raise questions about the rest of your application. Declare honestly; the floor exists precisely to stop this lever from working.

Other debts hurt more than the repayment suggests

• Credit cards are assessed on the limit, not the balance. A $15,000 card you never use is commonly assessed at around 3.8% of the limit per month — about $570 — which can cut your borrowing power by well over $60,000. Cancelling or reducing unused cards is the fastest fix available to most applicants.
• Buy-now-pay-later accounts show on statements and are increasingly treated as ongoing commitments. Close them.
• HELP/HECS debt reduces net income through compulsory repayments and is factored in.
• Car and personal loans count at their actual repayment. Paying one out before applying can free up serious capacity.

Deposit, LVR and LMI

Your loan-to-value ratio is the loan divided by the property value.

• 80% or below — the sweet spot. No Lenders Mortgage Insurance, the best rates, the widest lender choice.
• 80–90% — LMI applies and rates step up.
• 90–95% — LMI gets expensive, fewer lenders participate, and policy tightens.

LMI on a 95% loan can add tens of thousands to the amount you borrow. Lenders also want to see genuine savings — usually 5% accumulated over three months — rather than a deposit that appeared last week. Gifted deposits are often acceptable but may need a statutory declaration.

Your credit file

Lenders see your repayment history month by month for the past two years under comprehensive credit reporting. Missed payments on anything — phone, utilities, a card — leave marks. So do multiple recent credit applications, which read as distress.

Check your file free before you apply, and fix errors early. They take weeks to correct.

What to do in the three months before applying

In rough order of impact:

1. Cancel or reduce unused credit card limits. Largest and fastest gain.
2. Pay out or close BNPL accounts.
3. Clear a small personal or car loan if you can do it without gutting your deposit.
4. Keep bank statements clean. Lenders read them. Frequent gambling transactions, dishonour fees and overdrawn accounts all cost you.
5. Do not change jobs immediately before applying, if you can help it — though moving to a permanent role in the same field is usually fine.
6. Stop applying for other credit.

Why a broker often finds more

Policy differences between lenders are large and unpublished. A borrower on commission income, or self-employed for eighteen months, or with a 12% deposit, will get materially different answers from different lenders. That is a matching problem, and it is what brokers are genuinely useful for.

Use the calculator to get oriented, then get a real assessment before you make an offer on a house. A pre-approval is worth having in writing.