One of the first questions anyone approaching a bank or broker asks is: “How much can I borrow?” The answer depends on a surprisingly wide range of factors — and understanding them puts you in a much stronger position to maximise your borrowing capacity and secure the best loan possible.
What Is Borrowing Capacity?
Borrowing capacity (also called serviceability) is the maximum amount a lender is willing to lend you, based on their assessment of your ability to repay the loan. It’s not just about how much you earn — it’s about the full picture of your financial life.
Key Factors That Determine Your Borrowing Capacity
Gross Income: Lenders assess all forms of income — salary, bonuses, rental income, dividends, and self-employment income. Not all income is treated equally: rental income is typically credited at 80%, and overtime may require a 2-year history to be included.
Existing Debts and Commitments: Every credit card (assessed at the full limit, regardless of balance), personal loan, HECS/HELP debt, and car finance reduces your borrowing capacity. Many borrowers are surprised to find that a $10,000 credit card limit they never use can reduce their borrowing capacity by $50,000+.
Living Expenses: Lenders use a combination of your stated expenses and the Household Expenditure Measure (HEM) benchmark, taking whichever is higher. Be accurate when declaring living expenses — understating them can cause problems at settlement or even lead to irresponsible lending claims.
Number of Dependants: Each dependent child or elderly parent you support reduces your assessed surplus income, which directly affects how much you can borrow.
The Stress Test Rate: Lenders don’t just assess whether you can afford the loan at today’s rate — they add a buffer (typically 3%) to simulate higher rates. So if you’re borrowing at 6%, lenders test your ability to repay at 9%.
Employment Type: PAYG employees (especially those with 2+ years at the same employer) are viewed most favourably. Casual, contract, and self-employed borrowers often face more scrutiny and may need specialist lenders.
How to Maximise Your Borrowing Capacity
Pay down or cancel unused credit cards — Even if you have a zero balance, the credit limit counts against you. Closing or reducing limits before applying can make a significant difference.
Consolidate or pay off personal loans — Fewer debt commitments means more surplus income and higher borrowing capacity.
Avoid new debts before applying — Any new financial commitments in the months before your application will be scrutinised closely.
Choose the right lender — Different lenders have very different serviceability calculators. Some lenders may assess you 20–30% higher than others based on identical financials. A broker who knows each lender’s policy is invaluable here.
Increase your income documentation — If you earn bonuses, overtime, or rental income, ensure these are documented as thoroughly as possible (payslips, tax returns, rental statements).
Borrowing Capacity for Investment Properties
For investment properties, lenders typically assess rental income at 80% and factor in investment loan repayments as an expense. The more investment properties you hold, the more complex the serviceability picture becomes — which is why experienced investors work with specialist brokers who can sequence lender applications strategically to preserve borrowing capacity across the portfolio.
Get a Free Borrowing Capacity Assessment
At Assembly Finance, we run a detailed borrowing capacity assessment for every client — at no cost and with no obligation. We compare your situation across multiple lenders to find the one that offers the highest capacity and the best rate.
