How lenders decide what you can borrow

People tend to imagine borrowing capacity is a fixed property of their finances - a number that exists, which banks simply read. It isn't. It's the output of a policy, and every lender's policy is different.

The four things being assessed

Broadly, every lender is doing the same four-part calculation.

1. Income, and how much of it counts

Base salary is straightforward. Everything else is where lenders diverge sharply. Overtime, bonuses, commissions, shift allowances, rental income, government payments and second jobs are all treated differently - one lender might count 100% of your overtime, another 80%, another none at all unless you've had it for two years.

If a meaningful part of your income isn't base salary, lender choice alone can change your borrowing capacity by six figures. This is the single most under-appreciated fact in home lending.

2. Living expenses

You'll declare your household spending, and the lender will compare it against a benchmark - usually the Household Expenditure Measure - and against your actual bank statements. They take the higher of what you declare and what the benchmark says, and they will notice if your statements tell a different story.

The practical advice: be honest, and know your numbers before you apply. A wildly optimistic expense figure doesn't get you a bigger loan, it gets you a delay and some awkward questions.

3. Existing debts and commitments

Car loans, personal loans, HECS/HELP, buy-now-pay-later and credit cards all reduce capacity. Two catch people out:

• Credit cards are assessed on the limit, not the balance. A $20,000 card you never touch is treated as roughly $600 a month of commitment. Reducing the limit is often the fastest single improvement available.
• Buy-now-pay-later shows up. Regular Afterpay or Zip use appears on statements and some lenders treat it as a red flag about cash flow management, not just a debt.

4. The stress test

Lenders don't assess you at the rate you'll actually pay. They add a buffer - typically around 3% - and check you could still afford the repayments. So a loan at 5.9% is assessed at nearly 9%.

This is why your capacity feels so much lower than a repayment calculator suggests, and it's a genuinely sensible protection rather than an obstacle. It's the reason most Australian borrowers coped when rates rose sharply.

Things that quietly help

• Reducing or closing unused credit cards - often the biggest single win, and it takes a phone call.
• Paying out a small personal or car loan, if you can do it without gutting your deposit.
• Three to six clean months of statements - no gambling, no overdrawn accounts, no missed direct debits.
• Stability - lenders like consistent employment. If you're planning to change jobs, it's usually better to do it after settlement, not the week before you apply.
• Choosing the right lender - which is the entire point of using a broker.

What doesn't help

Applying to several lenders at once to "see who says yes". Every application leaves an enquiry on your credit file, and a cluster of them in a short period reads as desperation. It can turn a borderline approval into a decline. Pick the right lender first, then apply once.

The short version

Your borrowing capacity isn't one number, it's a range depending on who you ask. If your income is straightforward and your finances are tidy, most lenders will land in a similar place. If anything about your situation is unusual - self-employment, variable income, a credit blemish, a complicated family arrangement - the spread between lenders gets wide, and choosing well matters enormously.

Our borrowing calculator gives you a rough sense of scale. A conversation gives you a number you can rely on.