Borrowing capacity: how much can you borrow?
Borrowing capacity is the maximum a lender is willing to lend you, based on its assessment of whether you can comfortably repay. It is not the same as what you should borrow. This guide explains how lenders work it out, why they test you at a rate higher than the one you will pay, and the levers that move your number.
Last updated July 2026How lenders assess serviceability
Serviceability is the lender's judgement of whether your income can cover the loan repayments plus your living costs and other debts, with room to spare. In simple terms, a lender adds up your income, subtracts your expenses and existing commitments, and checks that what remains can service the new loan, not at today's rate, but at a higher stressed rate. That buffer is the piece that surprises most people.
The interest rate buffer
To make sure you can still cope if rates rise, lenders test your repayments at a rate above the actual loan rate. Under guidance from the Australian Prudential Regulation Authority (APRA), lenders are expected to assess new home loans with a serviceability buffer of at least 3 percentage points above the loan's interest rate. APRA raised this buffer from 2.5 to 3.0 percentage points in October 2021. So a loan advertised at, say, 6 percent is typically assessed as though the rate were around 9 percent.
This buffer is why your approved amount can be lower than an online calculator suggests. It is a deliberate safety margin, designed so you are not stretched to the limit if rates move.
What raises and lowers your capacity
| Increases capacity | Decreases capacity |
|---|---|
| Higher, stable income | High living expenses |
| A strong savings history | Credit card limits, even if unused |
| Few or no other debts | Personal loans, car loans and buy now pay later accounts |
| A longer loan term | Dependants and higher committed costs |
| A larger deposit and lower loan to value ratio | The interest rate buffer applied to the loan |
One point catches many people out: a credit card counts against you at its full limit, not your balance. A card you rarely use can still reduce how much you can borrow, because the lender assumes you could draw the whole limit.
Practical ways to improve it
- Reduce or close credit limits. Lowering card limits and clearing small debts frees up assessed capacity quickly.
- Trim recurring expenses in the months before you apply, since lenders review your real spending.
- Show genuine savings. A consistent savings pattern signals you can manage repayments.
- Avoid new debt and applications in the lead up, as fresh commitments and enquiries can weigh on the assessment.
- Consider the loan structure, since term and repayment type affect the assessed repayment.
Before you speak to a lender, map your own numbers with the budget planner. Knowing your true surplus tells you not just what you can borrow, but what you can comfortably repay.
The maximum a lender approves is a ceiling, not a target. Leaving headroom protects you against rate rises, income changes and the ordinary surprises of owning a home.
Frequently asked questions
Why is my approved amount lower than online calculators say?
Most simple calculators do not apply the serviceability buffer, count your full credit card limits, or use the lender's real expense benchmarks. A formal assessment is stricter, which is why the figure is usually lower.
Does a credit card really reduce how much I can borrow?
Yes. Lenders assess cards at their full limit, on the basis you could spend up to it. Reducing or closing limits you do not need can lift your borrowing capacity.
Will a bigger deposit increase my borrowing capacity?
A larger deposit lowers your loan to value ratio, can remove lenders mortgage insurance and may improve the rate, all of which help. Your income and commitments still set the underlying limit.
Keep reading
First home buyer? Start with first home buyer loans in Sydney. Investing? See investment property financing. Self employed? Read self employed and low doc loans, or define terms in the glossary.
Sources: Australian Prudential Regulation Authority (APRA), serviceability buffer guidance (buffer increased to 3.0 percentage points, October 2021); Australian Securities and Investments Commission (ASIC) MoneySmart, on how much you can borrow.
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Master Mortgage Broker Sydney is an independent education website. It is not a mortgage broker, does not arrange loans and does not provide financial or credit advice. Content here is general in nature and does not consider your personal objectives, situation or needs. Always confirm details with a licensed professional before acting.