Why your borrowing capacity is lower than expected

1. Your loan is tested at a higher rate

Lenders don't check whether you can afford today's repayments. They check whether you could still afford them if your rate were at least 3% higher, a buffer set by APRA. If your loan rate is 6%, it's tested at around 9%. That's the main reason a bank's figure is often lower than you expect.

2. Rates have risen four times in 2026

The Reserve Bank raised the cash rate four times this year, from 3.60% to 4.60%. The latest rise was on 29 September 2026. Source: RBA

When lenders pass a rise on, the rate your loan is tested at goes up too. Here's what that does to borrowing power for someone who can afford $3,000 a month in repayments:

Example only. Principal and interest repayments over 30 years. Actual lender calculations vary.

3. Your living expenses are benchmarked

You'll be asked what you spend each month. Lenders compare your figure with a benchmark for households like yours, often the Household Expenditure Measure (HEM), and use whichever is higher. They may also check your bank statements.

The expenses that tend to hurt borrowing power most are:

• Dependants. Each child raises the benchmark, and childcare and school fees add more.
• Regular commitments such as private health and other insurance, car costs and gym memberships.
• High discretionary spending that shows in your statements, like frequent takeaway, subscriptions or gambling.

4. Every debt and card limit counts

• Credit cards are assessed on the limit, not the balance. Many lenders assume repayments of 3% to 3.8% of the limit each month. On a $10,000 card that's $300 to $380 a month, which can cut borrowing power by roughly $37,000 to $47,000 when tested at 9%.
• Car loans and personal loans count at their actual repayments.
• Buy now pay later accounts count too, even with small balances.
• HECS-HELP repayments come out of your pay, so lenders include them. Since 1 July 2025 they're only charged on income above the threshold ($69,528 in 2026–27), and debts were cut by 20%, so many borrowers can now borrow a little more. More in how HECS debt affects home loans. Source: ATO

5. Not all income counts in full

Base salary usually counts in full. Overtime, bonuses, commission and rental income are often only partly counted, for example 80%, and some lenders want a track record first. Casual work, probation periods and self-employed income are each treated differently. See our self-employed guide for how business income is assessed.

6. Debt-to-income limits

Since 1 February 2026, banks can only make a limited share of new loans to borrowers whose total debt is six or more times their income. If you're close to that line, some lenders may be more cautious. Loans to buy or build a new home are exempt. Source: APRA

7. Each lender does the maths differently

Lenders differ on how they treat overtime, rental income, card limits and expenses, and some test at a rate higher than the minimum. For the same person, the difference between lenders can be tens of thousands of dollars. That's why the first figure you're given isn't necessarily the right one.

How to increase what you can borrow

1. Close credit cards you don't use, or lower the limits on the ones you keep.
2. Pay off or consolidate small debts, like a car loan near its end or buy now pay later balances.
3. Tidy up your spending for a few months before you apply, as lenders may read your statements.
4. Add a second income if you're buying with a partner.
5. Choose the right lender for your income type and situation, rather than just your own bank.

Our borrowing power calculator uses the 3% buffer, a modelled expense benchmark, card limits and the 2026–27 tax and HECS-HELP rates, so it's a good place to start.

Information is general and correct as at October 2026. Interest rates and lender policies change often, so get advice on your own situation.