How do banks calculate how much I can borrow?

They take assessable income, subtract living expenses (the higher of your declared expenses and a HEM floor), subtract existing debt commitments, then test whether the proposed loan still fits when the rate is lifted by the APRA serviceability buffer. Different lenders shade overtime, bonuses and rental income differently.

Why do two lenders give different borrowing-power figures?

Policy. Overtime treatment, floor expenses, credit-card limit factors, buffer application, and appetite for your occupation all differ. The number is not a law of physics.

Does a borrowing-power calculator give a real answer?

It gives a marketing answer. Use it as a range, then get a credit-assessed pre-approval if you are actually buying.

How lenders calculate borrowing power Australia

Borrowing power is a credit-policy output: assessable income, haircut, expenses, existing commitments, HEM versus your statements, and a serviceability buffer on the proposed rate. The homepage calculator is theatre.

By Priya Raman, Policy correspondent · 8 January 2026 · Updated 19 October 2026 · 5 min read

Every Australian property portal will, if you let it, tell you that you can borrow a number that would make your parents sit down. That number was produced by a calculator whose job is to keep you browsing listings. A lender's credit team produces a different number, and only the second one can settle a contract.

This guide is the second number: the serviceability assessment. It sits beside our pieces on the buffer, HECS-HELP, and credit scores.

Income is not your package

PAYG base salary is the easy part. Overtime, shift penalties, bonuses, commissions, overtime that disappeared when the new supervisor arrived — each lender has a rule: 50 per cent, 80 per cent, a two-year average, ignore it. Casual income may need a 12-month history. Self-employed income is usually the last two tax returns, with add-backs that some credit teams accept (depreciation) and some do not (every 'add-back' your accountant invented).

Family tax benefits and other government payments: some count, some do not, some count only if the child is under a certain age. Rental income is shaded. Granny flats, boarders, and 'my mate pays cash for the garage' are not rental income.

Expenses: HEM is a floor, not a lifestyle

The Household Expenditure Measure (HEM) is a statistical floor many lenders use. If your statements show you live above it — and most city households do — the lender should use your expenses. Responsible lending is not 'HEM says you eat air'. If you under-declare expenses, the statements will contradict you. If you over-declare, you shrink your own borrowing power. Be accurate.

Childcare, private school, private health, rent (if still renting during construction), and the fact you support a parent are real. Put them in.

Existing commitments

Home loans, personal loans, car loans, novated leases, HECS (see the dedicated guide), child support, and a percentage of credit-card limits (often around 3 per cent of limit per month as an assumed repayment). Unused cards hurt. BNPL can appear. Afterpay-style products have been pulled into assessments more tightly than applicants expect.

This is why paying off a card and closing it can lift borrowing power more than saving an extra $2,000 of deposit.

The proposed loan, buffered

The new repayment is not calculated at the advertised 5.99 per cent. It is calculated at 5.99 plus the serviceability buffer (the APRA setting, three percentage points in the recent regime unless changed). Interest-only is assessed on a harder basis at many lenders. Investment loans may have extra conservatism.

If that buffered repayment plus expenses plus existing commitments exceeds assessable income, the answer is no, even if you could 'make' the actual repayment today.

LVR and product still matter

Serviceability can say yes while product policy says no: high-density unit, flood overlay, short employment, visa type, irregular visa, probation. Borrowing power without product appetite is a number that cannot be used.

Worked sketch (illustrative)

Joint PAYG $95,000 + $78,000. Overtime $8,000 on one side, lender shades to 50 per cent = $4,000. Cards: $15,000 limit, 3 per cent = $450/month. Car loan $520/month. HEM versus actual: actual $4,800/month declared and evidenced. Proposed $600,000 30-year loan at 6.0 per cent, buffered at 9.0 per cent, repayment jumps into a range that may or may not fit. Change the car loan or the card limit and the yes/no can flip. That is the assessment.

How to improve the number without lying

Reduce card limits you do not use.
Clear small personal loans that eat more serviceability than their balances suggest.
Wait out probation if the lender requires it.
Document overtime history rather than arguing about next year's roster.
Do not apply six times.

For first home buyers, run this before you date a suburb. For refinancers, run it before you tell the current lender to get stuffed. The calculator on a homepage is not your enemy. It is just not your assessor.

Genuine savings and borrowing power are cousins

A lender can believe your income and still dislike a deposit that arrived yesterday. Serviceability yes plus genuine-savings no equals no. First home buyers should read both this piece and how much deposit you need as one file.

Shading tables you will never see

The overtime percentage is in a credit policy, not in the ad. A broker who knows Lender A's overtime rule is doing the job. You can also ask a lender's home-loan specialist to state the rule in an email. If they will not, you are guessing.

Pre-approval expiry

Borrowing power is dated. A pre-approval for 90 days assumes your job, the rate environment, and the buffer. If APRA moves or you change jobs, it is a souvenir. Refresh it before you bid.

Bring a one-page income map

Base, overtime (hours and history), bonus (two-year average), HECS, child support, rent received, and each card limit. Assessors are humans looking at PDFs. A map reduces errors that look like declines. If you are self-employed, the map is last two taxable incomes plus add-backs you can defend.

Do not hide BNPL. They will find it, or they will find it later in responsible-lending land, which is worse.

The 'we'll just use HEM' temptation

If your life costs more than HEM, using HEM is a fiction that responsible lending is supposed to catch. Caught fiction is a decline or a later complaint. Accurate expenses can reduce the number and still produce a loan you can live with. That is the better number.

Bring childcare invoices. They hurt the calculator and they are the truth.

Documents to bring, and a last caution

When you sit down with a lender, broker, packager or yard manager, bring payslips, tax returns if self-employed, HECS statement, card limits, and a true expense list. If they will not look at paper, they are selling speed. Speed is expensive in Australian credit.

Write down the thing you are afraid to ask — the fee, the balloon, the HELP treatment, the break cost — and ask it first, while you still have the nerve. The second conversation is always weaker. If the answer is vague, you do not have an answer.

This desk would rather you delay a week than sign a contract whose comparison rate you cannot explain to a friend. ASIC's MoneySmart remains the public-interest spare brain: use it the night before, not the morning after. And if the product only works on overtime that is not in your contract, it does not work. Buy a smaller thing, or wait. Waiting is still allowed.

How lenders calculate borrowing power in Australia