Borrowing power helps you understand how much you can afford to borrow for a home.
Learn how lenders assess income, debt, and living costs to set borrowing limits.
See what can affect your borrowing capacity and how to improve it over time.
Get practical steps and tools to estimate your borrowing power.
Your borrowing power helps you understand what homes you can comfortably afford. It’s one of the first steps in your home-buying journey, helping you focus on your property search, set a realistic budget, and strengthen your home loan application.
In this guide, we explain what borrowing power means, how lenders calculate it, the factors that influence it, and how you can improve it over time.
What is borrowing power?
Borrowing power, sometimes called borrowing capacity, is the maximum amount a lender may be willing to lend you for a home purchase.
It represents your financial comfort zone: how much you can borrow while still meeting your other financial obligations and everyday living expenses.
If your borrowing power is higher, it generally means a lender considers you capable of managing a larger loan responsibly, based on your income, expenses, and debt profile.
Why borrowing power matters
Knowing your borrowing power can:
help you stay focused on homes within your budget
prevent you from applying for loans you may not qualify for
give you a clear idea of likely repayments, including interest and fees
Borrowing power also changes over time. As interest rates, expenses or income shift, your capacity to borrow may rise or fall, so it’s worth reviewing regularly, especially before you start house-hunting.
Lenders also rely on borrowing power to assess how comfortably you could meet repayments if rates were to rise or your financial situation changed.
Use our Borrowing Power Calculator to estimate what you could borrow based on your income and expenses.
How lenders calculate borrowing power
Every lender uses its own assessment model, policies, and level of risk tolerance. That means your borrowing capacity can differ between lenders, which is why comparing options through a broker can make a difference.
Most lenders will review:
Income: salary or wages, rental or investment income, government payments, pensions or annuities.
Debts: existing loans, car finance, credit card limits, HECS-HELP balances, or Buy Now Pay Later commitments.
Living expenses: groceries, utilities, transport, insurance, education, and lifestyle costs.
Dependents: more dependents usually mean higher assessed household expenses.
Credit history: repayment consistency, defaults or high credit utilisation.
Deposit and savings: a larger deposit or steady saving pattern signals reliability.
Loan structure: loan term, repayment type, and interest rate (variable or fixed).
Economic factors: current interest rates, inflation, and benchmark living-cost assumptions.
Serviceability and assessment buffers
When lenders assess your loan, they test whether you could still meet repayments if interest rates increased. This is called serviceability testing.
Since 2021, the Australian Prudential Regulation Authority (APRA) has required lenders to apply at least a 3% serviceability buffer, meaning your loan is tested as if rates were 3% higher than today’s. Some lenders may use an even higher buffer.
Example: If your interest rate is 5.2% p.a., your loan is assessed as though it were 8.2% p.a. This helps ensure you could manage repayments if conditions change.
Debt-to-income (DTI) ratio
Some lenders also assess your debt-to-income ratio, which compares your total debt to your gross annual income.
For example, a DTI of 6 means your debts equal six times your income. Many lenders set internal DTI caps, often between six and eight, to manage risk.
How borrowing power works
Example: Imagine you and your partner have a combined after-tax income of $9,000 a month. You pay $1,200 in monthly commitments, including a car loan and a HELP debt.
At an assessment rate of 8.2%, a lender might approve a home loan of around $600,000-$650,000, depending on your deposit size, credit profile, and spending habits.
Use our Borrowing Power Calculator to model different loan scenarios and see how adjustments could affect your capacity.
What influences your borrowing capacity
Your borrowing power depends on several interrelated factors:
1. Income
Higher, consistent income generally increases borrowing power, but it’s assessed alongside dependents, debts, and expenses. For joint applicants, both incomes are considered, though shared obligations can reduce overall capacity.
2. Spending and saving habits
Lenders look for evidence of responsible money management. Bank statements showing consistent saving and moderate spending over several months can help strengthen your application.
3. Living expenses
Everyday outgoings, from utilities to childcare, are compared against a benchmark called the Household Expenditure Measure (HEM). Lenders use whichever figure is higher: your actual expenses or the HEM baseline.
4. Dependents
Supporting dependents increases your expected household costs, which can reduce borrowing capacity.
5. Existing debts
Ongoing debts reduce your borrowing power. These can include personal or car loans, other mortgages, credit card limits, HECS-HELP debt, or Buy Now Pay Later accounts. High credit limits can still count as potential debt even if unused.
6. Deposit size
A larger deposit means a lower loan-to-value ratio (LVR), which generally strengthens your position with lenders. A 20% deposit or more usually avoids Lenders Mortgage Insurance (LMI).
Read our How much do you need for a deposit guide for more detail.
7. Credit history and score
Lenders check your credit report to gauge reliability and repayment behaviour. Missed payments or defaults can reduce your borrowing capacity.
You can check your credit score using Aussie’s free credit score tool to understand where you stand before applying for a home loan.
8. Assets
Investments, shares, vehicles, or other property can support your profile by showing financial stability.
9. Loan type, term and rate
Longer loan terms and lower rates often increase borrowing power by reducing assessed repayments. Shorter terms or interest-only periods can have the opposite effect.
Your Aussie Broker can help you compare both options and find what suits your goals.
How to increase your borrowing power
Borrowing power isn’t fixed. You can improve it over time with a few consistent steps:
Increase your income: explore additional income sources or ensure all income is documented.
Reduce or clear debts: pay down credit cards or personal loans to lift serviceability.
Lower credit card limits: lenders treat your full limit as potential debt.
Tighten spending habits: budget consistently and build genuine savings.
Improve your credit score: make repayments on time and avoid unnecessary credit applications.
Maintain stable employment: most lenders prefer at least three to six months in your current role.
Save a larger deposit: a lower LVR signals reduced lending risk and can improve your options.
Choose a suitable lender: some lenders are more flexible for self-employed or complex borrowers.
Use our Mortgage Deposit Calculator to plan how long it may take to reach your deposit target.
Do savings affect borrowing power?
Yes. Lenders value genuine savings, or the money built gradually from your income, because it shows financial discipline and reduces risk.
Strong savings can boost borrowing capacity by increasing your deposit and lowering your LVR, which may open access to more competitive loan options.
Explore our Saving for a House Deposit guide for practical tips on building genuine savings and reaching your deposit goal sooner.
What you’ll need when applying
To assess your borrowing power, lenders will generally request:
recent payslips and income verification
bank statements showing spending and savings history
details of loans, credit cards, or other debts
evidence of assets (vehicles, shares, or property)
identification documents
information about dependents and household expenses
Your Aussie Broker can guide you through exactly what’s needed for your situation.
Ready to find out your borrowing power?
Your local Aussie Broker can help you understand how much you could borrow, compare lenders, and strengthen your application. Borrowing power changes as your income, debt, or interest rates shift, so it’s worth reviewing regularly to stay on track.
Book a free^ chat with an Aussie Broker today to get a clear picture of your borrowing capacity and next steps toward your home.
