Borrowing power: how lenders assess your income and debts

The serviceability equation

Every lender runs the same basic sum: assessable income, minus living expenses, minus existing commitments, minus the repayment on the new loan calculated at a buffered assessment rate. Whatever is left is your surplus, and the loan size is whatever keeps that surplus positive.

The buffer is the part borrowers underestimate. APRA requires lenders to assess at roughly 3% above the actual rate, so a 6.0% loan is stress-tested at around 9.0%. That single rule is why your borrowing power feels so much lower than what you know you can comfortably afford.

How different income types are treated

• PAYG base salary — used at 100%, usually the easiest to evidence
• Overtime and shift allowances — commonly 80%, sometimes 100% for essential services
• Bonuses and commissions — usually averaged over two years and shaded
• Casual income — needs 6–12 months in the role; often annualised from YTD figures
• Self-employed — two years of tax returns, with add-backs for depreciation and interest
• Rental income — typically 70–80% to allow for vacancy and costs
• Government payments — accepted by some lenders, ignored by others

What quietly destroys borrowing power

• Credit card limits — assessed on the limit, not the balance you carry
• Buy-now-pay-later accounts, even when paid off each month
• Car and personal loans, which can cost $80,000+ of capacity each
• HECS/HELP compulsory repayments at higher income levels
• Living expenses declared below a realistic benchmark and then verified higher
• Recent late payments, which cut you out of the sharpest-priced lenders

How to lift your borrowing power before you apply

• Close or reduce unused credit card limits (limits, not balances)
• Pay out or refinance short-term consumer debt
• Hold clean statement conduct for three to six months
• Choose a lender whose income policy matches how you're actually paid
• Consider a longer loan term or a small deposit top-up to change the LVR band