Why Does My Borrowing Capacity Look So Much Lower Than I Expected?
The number a lender approves is built around your worst-case scenario — income stress-tested at 3% above current rates, debts assumed to be fully utilised. Most people’s actual lives look better than that picture. But the approval is based on the picture.
Almost every borrower who runs a quick online calculator comes back with a number that’s higher than what a lender actually approves. The gap isn’t arbitrary — it’s the result of several assessment factors that calculators don’t fully capture.
The Serviceability Buffer
Every lender adds 3% to the current interest rate and assesses whether you could still service the loan at that elevated rate. This buffer alone reduces borrowing capacity by roughly 15–20% compared to what the headline rate implies.
Credit Card Limits — Not Balances
Lenders assess every credit card at its limit, not at your current balance. A $10,000 limit is treated as a $10,000 debt generating monthly repayments — regardless of whether it’s been used. A $10,000 limit can reduce borrowing capacity by $50,000–$80,000.
HECS Repayments
HECS repayments are deducted from your assessed income before borrowing capacity is calculated. At higher incomes where mandatory repayment rates are 7–10%, the impact is significant — often $20,000–$30,000 off the approved figure.
Buy-Now-Pay-Later Accounts
Afterpay, Zip, Humm, and similar accounts appear in lenders’ assessments. An account you haven’t used in six months still shows up. Closing them before applying removes them from the picture.
The Household Expenditure Measure
Lenders use a benchmark for living costs — the HEM — not your actual spending. Even if you’re frugal, most lenders apply the benchmark figure for your household size. This conservative floor exists by design.
You may wish to speak with a licensed mortgage broker to assess your personal circumstances.
This is general information only. Borrowing capacity calculations vary by lender and individual circumstances. Speak with a licensed mortgage broker before applying. All loans are subject to lender approval.
Sources: APRA Prudential Practice Guide APG 223; RBA, Serviceability Buffer Guidance 2023; ASIC MoneySmart, Borrowing Power 2025; ABS Average Weekly Earnings Nov 2024.
