Borrowing Power

Plain-English definition. Borrowing power (or borrowing capacity) is the maximum loan size a lender is willing to advance you, calculated from your income, living expenses, existing debts and a stress-tested interest rate.

How it works in Australia. APRA requires lenders to assess every applicant at an interest rate at least 3.0 percentage points above the actual offered rate — the "serviceability buffer" introduced in October 2021. Lenders also apply the Household Expenditure Measure (HEM) benchmark to declared living expenses, take 70–80% of rental income for investments, shade overtime/bonus income, and fully count the limit (not the balance) on credit cards. The Net Income Surplus after stressed repayments must remain positive.

Concrete example. A couple earning $180,000 combined gross with no kids, $10,000 in credit card limits and no other debt might be assessed on $135,000 net of tax. After HEM living expenses of $48,000 and credit card repayments calculated at 3.8% of the limit per month, they have roughly $80,000 of post-HEM income to service debt. At a stressed rate of 9.2% over 30 years, that supports about $810,000 in borrowing — though at the actual 6.2% rate they could mathematically afford $1,000,000+.

Common confusion. Pre-approval is not the same as confirmed borrowing power. Pre-approval lapses, can be withdrawn after a valuation, and is subject to the lender's final credit decision. A buyer with $800k pre-approval should not bid $800k at auction — bid below to leave headroom.