Income & Serviceability

How Lenders Assess Income

Lenders do not assess income at face value. Every income source is classified, adjusted downward where policy requires, and then tested at a rate approximately 3% above the actual loan rate (the APRA serviceability buffer). The result is a conservative net assessed income that may be significantly lower than what appears on a payslip or tax return.

What "shading" means

Shading is the process of discounting an income source before it enters the serviceability calculation. Lenders shade income to account for variability, continuity risk, or the possibility that the income may not persist at its current level.

Shading is applied differently across income types:

• Base PAYG salary: typically assessed at 100% — no shading applied to the base component
• Overtime, bonuses, and commission: commonly shaded 20–50%; most lenders require a 2-year history before recognising variable income components at any percentage
• Rental income: typically shaded 20–30% to account for vacancy, management fees, and maintenance
• Self-employed and company income: usually averaged over the last two financial years; a declining trend often triggers further conservative treatment
• Foreign income: shaded for currency risk and country risk — commonly 10–40% depending on currency and lender policy
• Government income: Centrelink and other government payments are assessed by lenders individually; some are included, others excluded depending on the payment type and policy

The APRA stress buffer

Under current APRA guidance, lenders assess serviceability at approximately 3% above the actual product rate. A borrower taking a loan at 6.5% is assessed at roughly 9.5%. This buffer is designed to ensure borrowers can continue to service the loan if rates rise materially after settlement.

Income types covered in this pillar

• How lenders assess income — the fundamental mechanics
• Acceptable income sources — what counts, what doesn't
• PAYG income stability — employment history requirements
• Bonus, overtime and commission treatment — shading and history requirements
• Income history requirements — documentation standards
• Income continuity evidence — what lenders verify
• Self-employed income calculation — tax returns, averaging, add-backs
• Permitted business add-backs — depreciation, one-off expenses, excess super
• Rental income shading — how investment income is treated
• Probation, contract, and casual income — employment status sensitivity
• Unstable income decline conditions — when declining income triggers a problem
• Currency conversion assessment — foreign income mechanics
• Foreign and expatriate income treatment — expat-specific assessment rules

Canonical question cluster

The income recognition canonical question cluster covers all aspects of how different income types are classified and assessed.

Model your position

For a structured diagnostic of how your specific income mix is likely to be assessed — including any shading, averaging, or continuity requirements — Structur ↗ provides an individual income modelling environment.