How Lenders Calculate Your Borrowing Capacity

Understanding how lenders assess your borrowing capacity can help you prepare better and potentially increase the amount you can borrow.

Income Assessment

Lenders look at your gross income from all sources:

• PAYG employees: Base salary plus regular overtime, bonuses, and allowances
• Self-employed: Usually the average of the last 2 years' net profit
• Rental income: Typically 80% of gross rent is counted
• Other income: Dividends, government payments, etc.

Expense Assessment

Lenders use either your declared expenses or the Household Expenditure Measure (HEM), whichever is higher. They'll review your bank statements for:

• Living expenses
• Existing loan repayments
• Credit card limits (even if not used)
• BNPL services

The Buffer Rate

Lenders add a buffer (typically 3%) to the current interest rate when calculating if you can afford the loan. This ensures you can still make repayments if rates rise.

Example: If the loan rate is 6%, they'll assess at 9% to ensure you can handle potential rate increases.

Tips to Maximize Borrowing Capacity

• Reduce credit card limits (or close unused cards)
• Pay off personal loans and car loans
• Close unused BNPL accounts
• Minimize discretionary spending before applying
• Consider a longer loan term (though this increases total interest)

Want to know your borrowing power? Use our borrowing calculator for an estimate, or speak with us for a more accurate assessment.