After the bank said no, a new plan across two states.
What is borrowing capacity?
Borrowing capacity is the amount a lender decides you can afford to repay. It checks your income, living costs, debts and the loan you want. Also called borrowing power, it helps set your buying budget. A large deposit or a high property value alone does not mean you can get a bigger loan.
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How do lenders calculate borrowing capacity?
Lenders check that your income can meet living costs, other debts and the new loan payments. They check payslips or business income, spending, loans and credit limits. They may count only some of your rent or earnings that change from month to month.
Serviceability means being able to keep paying a loan. Lenders also check your deposit and credit history. They check the property used to back the loan, called security. People with the same pay can get different results from these checks.
What is APRA's serviceability buffer?
The buffer is an extra margin in the loan payment test. At the time of writing, banks must test new home loans at least 3 percentage points above the loan rate. APRA's linked May 2026 outlook confirms this rule. A bank can also set a higher minimum test rate.
You do not pay the rate used for this test. The extra margin allows for shifts in rates, income or costs. Even if you pass the test, you still have to make the real loan payments when they fall due.
Does APRA limit everyone to six times their income?
No. Since 1 February 2026, each bank has had a cap on some new home lending. No more than 20% can be at a debt-to-income ratio of six times or more. This ratio is total debt divided by yearly income before tax. The bank applies the cap to home buyers and investors as separate groups.
The rule caps the bank's share of those loans, rather than setting a limit for each person. Loans to buy or build new homes are exempt. So are owner-occupier bridging loans, which fund the gap between buying and selling a home. Each borrower still has to pass the lender's loan and repayment checks.
Illustrative example4 steps
Income left before the proposed mortgage
- Monthly income after tax: $8,000.
- Living costs and existing repayments: $5,000 a month.
- Amount remaining: $8,000 minus $5,000 = $3,000 a month.
- This is a starting cash budget, not a borrowing limit; the lender applies its own repayment test and buffers.
For investors
Equity and repayment capacity answer different questions.
Equity, the value left after debt, can help back a further loan. Yet your income must still cover the new debt. A lender may count less than the full rent to allow for empty weeks and property costs. This matters even if you have a lot of equity. Tax rules depend on what the borrowed money pays for. Check that use with your accountant.
Common questions
Questions about borrowing capacity
Keep learning
Property is a complex world.
Borrowing capacity is one piece of it. Lending rules decide how much you can borrow, and how soon you can buy again. Next, read about loan-to-value ratio, equity and mortgage broker.
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