The 5-Minute Lending Overview

The Five Things That Shape Most Lending Outcomes

This is a high-level overview of the five assessment areas every residential lender works through. Each area is covered in depth elsewhere on this site — this page explains the essentials.

1. Income and serviceability Lenders do not assess income at face value. They classify each income source, shade it where policy requires, and test it at a rate approximately 3% above the actual loan rate (the APRA serviceability buffer). PAYG base salary is generally treated most reliably. Variable income — commissions, bonuses, overtime — is typically averaged over 12–24 months and may be partially shaded. Self-employed income requires two years of tax returns and is assessed as normalised, maintainable earnings. Rental income is shaded by most lenders to account for vacancy and costs.

2. Expenses and existing commitments All existing debt repayments are modelled at a stressed rate. Credit card limits — not balances — are assessed as a notional monthly repayment. HECS reduces net income. Leases and BNPL facilities are included. Living costs are compared to the Household Expenditure Method (HEM) benchmark and the higher of declared or benchmark is used. Every dollar of committed expenditure reduces the surplus available to service new debt.

3. Assets, deposit, and equity The deposit must meet the lender's minimum and, where it represents the borrower's own savings, may need to be evidenced over 3 months. Gifts, tax refunds, and inheritance require specific documentation. The LVR calculation uses the lower of the contract price or the lender's independent valuation. An LVR above 80% typically triggers LMI.

4. Security — the property The lender assesses the property independently. Apartments under 50sqm, properties in specific postcodes, unusual zoning, resort-style complexes, and rural properties can all attract LVR restrictions or require manual underwriting regardless of borrower strength.

5. Borrower profile and credit conduct The credit file is reviewed for defaults, late payments, and credit enquiry patterns. Bank statement conduct — particularly the 3–6 months before application — is reviewed for gambling transactions, overdrafts, sustained BNPL use, and financial stress patterns. Employment type, entity structure, and residency status also affect which policy pathways are open.