The Four Things Every Lender Looks At

Your income. Lenders assess what you earn, and they treat different types of income differently. Base salary is counted in full. Overtime, bonuses, commissions, and casual or self-employed income are often discounted or averaged over a longer period. Rental income from existing properties is not counted at 100% either.

Your expenses. Lenders do not just take your word for what you spend. They compare your declared living expenses against a benchmark known as the Household Expenditure Measure (HEM) and generally use whichever figure is higher. Cutting your spending on paper does not help if the benchmark sits above it.

Your existing debts and commitments. Home loans, car loans, personal loans, and buy now pay later accounts all reduce what you can borrow. Credit cards count based on the limit, not the balance. A card with a $15,000 limit and nothing owing still reduces your capacity.

Your household situation. Children and other dependants increase the living expenses lenders assume, which reduces capacity.

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The Stress Test: Why You Are Assessed at a Higher Rate Than You Pay

This is the part that surprises most borrowers.

Lenders do not assess you at the rate you will actually pay, they add a buffer. APRA requires lenders to assess a borrower's ability to repay at an interest rate 3 percentage points above the actual loan rate. If your loan rate is 6.5%, you are assessed as if it were 9.5%.

The buffer exists to make sure borrowers can still manage if rates rise or their circumstances change. With the cash rate now at 4.6%, it is doing more work than it was a few years ago.

The effect on borrowing capacity is large. On a $1 million loan, every 1% on the assessment rate is roughly $10,000 a year in interest, which is why small changes in how lenders apply their policies can move your number materially.

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What Reduces Your Borrowing Capacity

A few factors quietly cut the number, often without borrowers realising.

• Credit card limits, including unused ones
• Buy now pay later accounts
• Living expenses above the HEM benchmark
• Existing loans, particularly those on principal and interest repayments
• Variable or irregular income that lenders average down
• Having more dependants

Reviewing these before you apply can lift your capacity without earning a dollar more. Closing unused cards and clearing small debts are common first steps.

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How Lender Policies Are Shifting

Lenders are adjusting their policies to restore some of the servicing capacity that tighter regulation has taken away. According to a March 2026 report in Broker Daily, brokers are seeing banks look for ways to give servicing back to borrowers while the 3% buffer stays in place.

1. Rental income shading is easing. NAB reduced the share of rental income it excludes from serviceability calculations from 20% to 10% (plus expenses). On $1,000 a week in rent, that lifts the income counted from $800 to $900. For an investor with existing properties, that can meaningfully increase the amount they can borrow for the next purchase.
2. Casual income is being treated more flexibly. Several lenders have opened up options for casual income, and Westpac updated its rules around casual employment. The reasoning is that a borrower who has worked casually in the same role for years may have income as stable as many full-time employees.
3. APRA now limits high debt to income lending. From 1 February 2026, APRA restricted lenders from writing more than 20% of new mortgages to borrowers with debt of six times their income or more. This is a limit on a lender's overall book rather than on any one borrower, and the RBA reports that the share of new high DTI lending remains well below the cap. Even so, it makes lenders more selective with borrowers at the top of that range.
4. More banks are joining the 5% Deposit Scheme. ANZ became the last major bank to join the government scheme, which lets eligible first home buyers purchase with a deposit as low as 5% (2% for single parents) without paying lenders mortgage insurance. More lenders on the panel can mean faster approvals and more competitive rates for those buyers. The scheme is for first home buyers purchasing a home to live in, rather than for investment purchases.

The takeaway is that the same borrower can receive meaningfully different results from different lenders. Policy details change often, which is why a current assessment matters more than a figure you worked out months ago.

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What Lifts Your Borrowing Capacity

• Reducing or closing credit card limits
• Paying down or clearing personal loans and car loans
• Lowering regular spending well before you apply, so your statements reflect it
• Applying with a partner who has stable income
• Choosing a lender whose policies suit your situation, such as how they treat rental income or casual and self-employed earnings
• Using an interest-only period on an investment loan, which can change how repayments are assessed

Lender choice matters more than most people expect. A broker who works across many lenders can match your profile to the one that treats your income most favourably.

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Investment Property Adds Another Layer

When you borrow to invest, the assessment gets more detailed.

Rental income is shaded. Lenders count only a portion of expected rent to allow for vacancy and costs, and the share varies by lender.

Your existing portfolio is included. Every loan you already hold is assessed, along with its repayments, which is why capacity can shrink quickly as a portfolio grows.

Loan structure changes the assessment. An interest-only period lowers repayments during that period, but lenders assess you over the remaining principal and interest term, so the benefit is smaller than many expect. A 40-year term can lift capacity a little, though the gain is modest.

For a full walkthrough of using existing property to fund your next purchase, read our blog on using equity to buy an investment property.

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Why Online Calculators Mislead

Online calculators are a starting point, not an answer. They typically use one set of assumptions, do not apply a specific lender's policy, do not reflect how your income is actually treated, and often understate expenses.

The result is a number that can be too high, which leads to disappointment when a lender assesses you, or too low, which causes you to rule out opportunities you could have pursued. The only reliable figure comes from a formal assessment with a broker who understands investment lending and runs your position through the policies of multiple lenders.

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How to Find Out What You Can Realistically Borrow

1. Gather your documents. Recent payslips, tax returns, bank statements, and details of all existing debts and credit limits.
2. Tidy up before you apply. Reduce unused credit limits and clear small debts where it makes sense.
3. Speak to a broker who works across many lenders. At Search Property we work with Refyne Loans for exactly this.
4. Ask about structure as well as the number. The right loan structure can protect your capacity for the next purchase, not just the first.
5. Build your strategy around the result. Your real borrowing capacity determines which markets and property types are open to you.

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Ready to Find Out What You Can Realistically Borrow?

At Search Property, we help Australians cut through the noise and build data-driven investment strategies aligned with long-term wealth goals. Our buyers agents have helped thousands of clients build wealth through property because we focus on fundamentals, not headlines.

Book a FREE investment assessment with Search Property. We'll look at your position, your borrowing capacity, and the strategy that fits your goals.

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