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-regulated banks must apply a serviceability buffer of at least 3.0 percentage points above the loan rate when assessing a new housing loan. Lenders also verify living expenses and may use internal benchmarks. Treatment of rental income, overtime, bonuses, credit card limits and minimum surplus varies by lender and application.

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 Pre-approval lapses, can be withdrawn after a valuation, and is subject to the lender's final credit decision.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.