How Banks Actually Calculate Your Borrowing Capacity in 2026
When a borrower asks 'How much can I borrow?', the answer depends on the lender's serviceability model — and no two lenders calculate it exactly the same way. Understanding these models is core to a broker's expertise, because a client who maxes out at $550,000 with one lender might qualify for $650,000 with another.
The starting point is income. Lenders count 100% of base salary but typically only 80% of overtime, bonuses, and commission. Rental income from investment properties is usually counted at 80% of gross rent. Self-employed borrowers face the most scrutiny — lenders average the last two years of tax returns and may exclude one-off income items.
On the expense side, lenders use the higher of your declared living expenses or the Household Expenditure Measure (HEM) benchmark. HEM is a statistical estimate of minimum spending based on household composition. Most borrowers' declared expenses are below HEM, which means the benchmark is what actually gets used in the assessment.
Existing debt commitments are assessed at their current repayments (for most debts), but credit card limits are assessed at 3% of the total limit per month — even if the card has a zero balance. A $20,000 credit card limit that you never use costs you approximately $60,000 in borrowing capacity. This is one of the most common issues brokers help clients address.
The assessment interest rate is where most capacity is lost. APRA requires lenders to test serviceability at the actual rate plus a buffer of at least 3%. So a loan at 6.5% is assessed at 9.5%. This buffer exists to ensure borrowers can handle rate increases, but it significantly reduces the maximum loan amount compared to what repayments at the actual rate would suggest.
Different lenders have different minimum buffers, assessment rates, and income-shading policies. This is why broker access to multiple lenders is so valuable — and why tools like BrokerIQ that model serviceability across dozens of lenders simultaneously save brokers hours of manual comparison.