It is the first question almost everyone asks, and the honest answer is that there is no single number. Borrowing capacity is not a fact about you — it is the output of a particular lender's assessment model, and those models differ enough that two lenders can look at identical finances and land hundreds of thousands of dollars apart.

Understanding what goes into that calculation is what lets you influence it.

Income is assessed, not just added up

Lenders rarely take your gross income at face value. Different income types are treated differently, and the treatment varies by lender:

  • Base PAYG salary is the most straightforward and is generally taken in full.
  • Overtime, bonuses and commissions are usually shaded — a lender may count only a portion, and may want to see a consistent history before counting them at all.
  • Rental income from an investment property is almost always discounted, to allow for vacancy and costs.
  • Self-employed income is assessed from tax returns and business financials, and lenders differ on whether they use the most recent year, an average, or the lower of two years.

That last point is why self-employed borrowers see the widest spread between lenders. We cover it in more depth in our guide to self-employed home loans.

Expenses: the benchmark versus what you declare

Lenders assess your living expenses against a benchmark — a standardised estimate of what a household of your size and income typically spends. If what you declare comes in below that benchmark, most lenders will use the benchmark anyway.

This surprises people who have been careful savers. Being frugal does not necessarily increase your borrowing capacity, because the assessment has a floor. What it does do is strengthen your position in other ways — a clean set of statements and visible savings history make the file easier to approve.

Existing debts count more than most people expect

Two things routinely catch borrowers out here.

Credit cards are assessed on the limit, not the balance. A card with a $30,000 limit and nothing owing on it still reduces your capacity, because the lender assumes you could draw the full limit tomorrow. Reducing or closing unused limits before you apply is one of the few genuinely quick wins available.

Other commitments add up. Car loans, personal loans, buy-now-pay-later facilities and HECS/HELP repayments all reduce the income available to service a mortgage. HECS in particular is often forgotten, and on a higher income the repayment is not small.

The assessment rate is not the rate you pay

This is the single biggest reason the number comes back lower than people expect. Lenders are required to assess whether you could still afford the loan if rates rose — so they test your application against a rate meaningfully higher than the one you would actually be charged.

The practical effect is that your borrowing capacity is calculated on a repayment you are not making. It is a deliberate safety margin, it applies to everyone, and it moves when the regulator adjusts it.

Why the number changes between lenders

Every lender builds its own model within the regulatory framework. They differ on how much bonus income to count, how they treat rental income, how they assess self-employed earnings, what benchmark they apply to living expenses, and how they handle existing debts.

None of these are secret, but there are a lot of them, and the combination that suits a PAYG couple with one child is rarely the combination that suits a business owner with an investment property. Matching the borrower to the lender whose model reads their situation most favourably is most of what a broker is doing.

What actually moves the number

  • Reducing credit card limits. Fast, and often worth more than people assume.
  • Clearing or consolidating small debts. A nearly-finished car loan still counts at full repayment until it is closed.
  • Choosing the right lender. Particularly if your income is variable, self-employed, or includes significant bonus or rental components.
  • Loan structure and term. A longer term lowers the assessed repayment, though it raises total interest over the life of the loan.
  • Waiting, sometimes. If you are a few months from a second year of financials or the end of a probation period, timing can be worth more than anything else on this list.

Get a real number, not an online estimate

Online calculators use a single generic model and cannot see the detail that actually drives the outcome. They are fine for a rough sense of scale and unreliable for anything you would bid on.

A properly assessed pre-approval, where a lender has reviewed your documents, is a different thing — and at auction, where there is no cooling-off period and no finance clause, it is the only one worth relying on.

Talk to a Sabea broker and we will work out what you can borrow across more than 60 lenders, and which of them reads your situation best.

General information only. It does not take your objectives, financial situation or needs into account, and it is not credit or financial advice. Lender policy, rates and eligibility change regularly and vary between lenders — talk to us about your own circumstances before acting on anything here.