What’s Really Shaping Your Borrowing Capacity?
Earning the same income you were six months ago doesn’t necessarily mean you can borrow the same amount today. Borrowing capacity moves with more than just your pay packet — and it’s worth understanding where you stand before you start house hunting, refinancing or investing.
Interest rates set the tone
Interest rates have been front and centre in 2026. When rates rise, lenders have to factor in higher repayments both now and down the track, which can shrink how much you’re able to borrow.
Lenders also apply a serviceability buffer of 3 percentage points on top of your actual rate — a requirement set by APRA. So if your home loan rate is 6%, you’ll effectively be assessed as though it were 9%. It’s designed to make sure borrowers can absorb future rate rises, but it also puts a natural ceiling on borrowing capacity.
High debt-to-income limits
Since 1 February this year, APRA has capped how much high debt-to-income (DTI) lending banks can take on, limiting them to issuing no more than 20% of new mortgages to borrowers whose total debt sits above six times their gross annual income. This applies separately across owner-occupier and investor lending.
This isn’t a direct cap on what you personally can borrow — it’s a portfolio-wide limit for banks. But if your combined debts push your DTI to six times your income or beyond, approval can become harder if your chosen lender is already close to its limit.
Credit cards count, even unused ones
Multiple credit cards with high limits can work against you, even if you barely touch them. Lenders count your total available credit as a standing financial commitment. Closing cards you no longer need before applying can genuinely help your application.
Living expenses: the HEM benchmark
Lenders benchmark your declared living expenses against the Household Expenditure Measure (HEM). If your actual spending comes in under the HEM figure, the lender will typically still use the higher HEM number — which can reduce what you’re assessed as able to borrow.
Existing debts add up
Car loans, HECS-HELP debt and buy-now-pay-later commitments are all factored into a lender’s assessment. Debt consolidation can sometimes help by lowering monthly repayments, but it’s worth weighing up carefully — stretching short-term debt over a longer loan term can mean paying more interest overall.
Not all lenders see it the same way
Borrowing capacity isn’t assessed uniformly. Some lenders are more accommodating of self-employed income, while others take a more flexible approach to HECS-HELP debt. Comparing policies across lenders is exactly where a broker earns their keep.
Find out what you can actually borrow