Borrowing Capacity Explained: Why Every Lender Gives a Different Answer

The short answer

Your borrowing capacity is the most a lender will let you borrow, based on your income, expenses and debts. Every lender calculates it differently.

That’s why the same person, with the same payslips, can get three very different answers from three lenders. The gap can be tens, even hundreds of thousands of dollars.

How lenders calculate it

Every lender follows the same basic steps:

1. Start with your income. Salary, overtime, bonuses, rental and business income, each counted at the lender’s chosen percentage.
2. Take away your living expenses. Either what you declare or a benchmark called HEM, whichever is higher.
3. Take away your existing debts. Credit cards, car loans, personal loans, HECS and Buy Now Pay Later.
4. Stress-test the new loan. Lenders check you could still afford repayments if rates rose, usually by 3%.

Whatever surplus is left decides how much you can borrow. Change any one of those steps, and your borrowing capacity changes with it.

Where lenders differ

Every lender has its own rulebook. Here are some of the biggest differences we see:

Area	The usual rule	What some lenders can do
New job	Some lenders want time in the role	Pre-approve on a signed employment contract
Overtime	Shaded to 80% and averaged over the year	Count 100% for some industries, or annualise the last 3 months
Bonus and commission	2 years’ history, average or lower year	Use your latest year, or annualise 3 to 6 months of commission
Self-employed	2 years’ trading, average or lower year	Use your latest year, or BAS, an accountant’s letter or declared income
Rental income	Counted at 75–80%	Count 85–95%, and rarely 100%
Living expenses	Full lease counted, even if shared	Count only your share; remove costs about to end
HECS	Repayment counted against income	Ignore it if repaid within a year or under a threshold
Credit cards	Assessed on the full limit	Close or reduce limits to free up capacity
Buffer	3% above your rate	2% at some lenders; 1% in some cases, like straight refinances

On their own, each difference can shift your borrowing power. Combined, they can change it dramatically. Each area is covered in detail in the series below.

Investors: what changed in 2026

The May 2026 federal budget limited negative gearing on established investment properties bought after 7:30pm AEST on 12 May 2026. The rules take effect from 1 July 2027, but lenders have already updated their calculators.

Many lenders no longer add the negative gearing tax benefit back into your income for affected properties. Properties bought before 12 May 2026 and eligible new builds can still count. For a substantial investment purchase, the difference can be hundreds of thousands of dollars in borrowing power, so get a fresh assessment before you sign.

Capacity vs comfort

Your borrowing capacity is a ceiling, not a target. Just because a lender will lend you an amount doesn’t mean it fits the life you want.

Before you commit, plan for life changes like kids or rate rises, keep a few months of repayments in your offset, and try a trial run. Save the difference between your current rent and your future repayment for three to six months. If it feels tight, consider borrowing less.

Go deeper: the full series

• What income counts: base salary, overtime, bonuses, commission and self-employed income.
• What reduces your borrowing power: living expenses, debts, HECS and the serviceability buffer.
• Borrowing power for investors: rental income, property costs and negative gearing.

Sound like a walk in the park?

If you enjoy reading the fine print and ringing around different banks to work it all out yourself, you probably don’t need a broker.

Finding it a bit overwhelming? That’s exactly why we’re here. With access to over 40 lenders, we cut through the jargon and complexity so you can focus on the most important part: living your life.

Book a chat · Next lesson: What income counts

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Lender policies vary and change regularly. Examples are illustrative. Negative gearing information is current as at November 2026. Seek advice from a licensed credit adviser and your accountant before acting. Insight Property Finance.