Borrowing Capacity
Borrowing capacity is the maximum a lender will approve given the interaction of all five assessment pillars — and it is almost always lower than the gross income multiple most borrowers expect.
Core Assessment Analysis
How Lenders Calculate Borrowing Capacity
Borrowing capacity is not a single universal number. It is the maximum loan amount a specific lender will approve for a specific borrower at a specific point in time, based on their full credit assessment. The same borrower can receive meaningfully different borrowing capacity figures from different lenders, because each lender applies its own policy thresholds, income shading rules, and expense benchmarks.
The APRA serviceability buffer
Under current APRA guidance, lenders must assess whether a borrower can service the proposed loan at a rate approximately 3% above the actual product rate. This is known as the serviceability buffer.
If the product rate is 6.5%, the assessment rate is approximately 9.5%. The monthly repayment used in the serviceability calculation is based on 9.5%, not 6.5% — which means the loan amount a borrower can qualify for is materially lower than if assessment were at the actual rate.
The purpose of the buffer is to ensure that borrowers who are approved today could continue to service the loan if rates rose significantly in the years following settlement.
Net Surplus Income (NSI) and the servicing calculation
After deducting all assessed living costs and existing debt commitments from net assessed income, lenders calculate a Net Surplus Income (NSI) figure — the amount available to service the proposed new loan repayment.
If the NSI is positive and sufficient to cover the proposed repayment (at the stressed rate), the loan may be approved. If the NSI is negative, or below the lender's minimum surplus threshold, the loan will not proceed at that size.
The servicing ratio or Net Quality Ratio (NQR) is the proportion of income consumed by total debt commitments. Some lenders apply a maximum servicing ratio as an additional policy constraint.
Debt-to-income (DTI) caps
Some lenders apply a hard debt-to-income cap — a maximum total debt relative to gross annual income, regardless of the serviceability result. Common DTI caps sit at approximately 6 times gross income, though this varies by lender and changes over time with APRA guidance.
A borrower earning $200,000 gross per year may face a maximum total debt of $1,200,000 under a 6x DTI cap, regardless of whether the serviceability calculation would support more.
DTI caps are separate from, and additional to, the serviceability buffer.
Why different lenders produce different results
Borrowing capacity results vary between lenders because:
- HEM benchmarks differ (some lenders use higher floors)
- Income shading rules differ (one lender may shade bonus income differently from another)
- DTI cap thresholds differ or may not apply
- Existing investment loan stress-test rates differ slightly
- Policy appetite for specific borrower types differs
For borrowers with variable income, self-employment, or complex liability structures, the variation between lenders can be substantial.
Pages in this cluster
Related clusters
- Income Recognition — the income side of the calculation
- Living Costs — the expense side
- Existing Debts — debt commitments deducted before capacity is measured
Why Underwriters Focus Here
APRA's serviceability buffer and DTI guidance exists because individual lending decisions aggregate into systemic risk. A credit cycle where approvals are made at face-value income, without stress testing, creates a financial system that is vulnerable to rate increases and income disruption at the same time. The APRA framework ensures that each lender's approval is built on a conservative income and expense assumption, reducing the probability of simultaneous default under adverse conditions.
Key Outcome Assessment Factors
Gross and net assessed income (after shading), existing debt commitments (stressed at approximately 3% above actual rate), credit card limits (assessed at 3–3.8% of total limit per month), living costs (HEM or declared, whichever is higher), the APRA buffer rate in effect at the time, and any DTI cap the lender applies. Structur at structur.com.au provides an individual capacity modelling environment.
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General educational information only. Borrowing capacity calculations vary between lenders and are subject to policy change. This content does not constitute credit advice. Model Mortgages Pty Ltd | ACL 387460.
Model Mortgages Pty Ltd | Australian Credit Licence 387460
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