Borrowing Power
How Much Can I Borrow? Understanding Serviceability in the Current Rate Environment
"How much can I borrow?" is the first question almost every client asks us - and in mid-2026, the honest answer is: probably less than you think, and almost certainly less than the same income would have supported eighteen months ago.
Here's how lenders actually run the numbers right now, and which levers genuinely move them.
The 3% buffer: why you're assessed at over 9%
The RBA cash rate sits at 4.35% following the February, March and May increases (source: RBA cash rate statistics, retrieved 4 July 2026). Sharp advertised variable rates are currently sitting around 5.99%-6.44%.
But lenders don't assess you at the rate you'll actually pay. Under APRA's serviceability rules, they must add a buffer of at least 3 percentage points to the loan's interest rate. So a 5.99% variable is assessed as if you were paying roughly 8.99%; a 6.44% rate is assessed at about 9.44%. In practice, most applications in July 2026 are being stress-tested somewhere between 9% and 9.4%.
The logic is simple: the lender wants to know you could still make repayments if rates rose materially, or if your circumstances tightened. It's conservative by design - and it's the single biggest reason borrowing power feels lower than the current rates on offer would suggest.
The mechanics: how the calculation actually works
Every lender's calculator follows broadly the same sequence:
- Start with net income. Gross salary minus tax, plus any acceptable extras (rental income, bonuses, overtime - more on how these get trimmed below).
- Subtract living expenses. You declare them, but lenders floor your figure at the Household Expenditure Measure (HEM) benchmark for your income, location and household size. Declaring unrealistically low expenses doesn't help - the floor kicks in.
- Subtract existing commitments. This is where people get surprised. Credit cards are assessed at roughly 3.8% of the limit per month - even if the card sits unused in a drawer. HECS/HELP repayments come off your income. Car loans, personal loans and buy-now-pay-later arrangements are all counted at their contracted (or assumed) repayments.
- Capitalise the surplus. Whatever monthly surplus remains is converted into a maximum loan by asking: what 30-year loan does this surplus service at the assessed rate of ~9-9.4%?
A worked example (indicative only). A single applicant on $110,000 gross, no debts, no dependants, with moderate declared living expenses. Net income is around $7,100-$7,200 a month. After HEM-level expenses of roughly $2,500-$2,800, the surplus is in the vicinity of $4,300-$4,700 a month. Capitalised at an assessment rate of about 9.2% over 30 years, that supports a loan somewhere in the order of $550,000-$600,000, depending on the lender and their expense tables. Run your own scenario through our borrowing power calculator - but treat any online figure as a starting point, not a promise.
Why each 0.25% hike quietly costs you 2-3% of capacity
When the RBA lifts the cash rate by 0.25%, lenders' assessment rates move up by roughly the same amount - and the maths of a 30-year loan means each 0.25% at the assessment rate shaves about 2-3% off maximum borrowing capacity.
The three 2026 hikes have therefore trimmed roughly 6-9% from most people's borrowing power since January - around $40,000-$55,000 on our example applicant - even for borrowers whose incomes rose over the same period. If your pre-approval lapsed earlier this year, don't assume the old number still stands. It probably doesn't.
The levers that actually move the number
The good news: borrowing power isn't fixed. These are the changes we see genuinely shift lender outcomes.
| Action | Typical impact on capacity (indicative) |
|---|---|
| Close or reduce a $20,000 credit card limit | +$75,000-$90,000 |
| Pay out a car loan with $650/month repayments | +$70,000-$80,000 |
| Close BNPL accounts before applying | +$10,000-$30,000 |
| Add a second applicant on $70,000 | +$250,000-$350,000 |
| Clear a HECS/HELP balance near the end of its life | +$40,000-$80,000 |
| Choose a lender whose policy suits your profile | Can vary by $100,000+ |
A few of these deserve unpacking:
- Credit card limits, not balances. Because lenders assess ~3.8% of the limit per month, a $20,000 limit costs you around $760/month of assessed capacity - roughly $75,000-$90,000 of borrowing power - whether or not you've spent a cent on it. Reducing limits before applying is the cheapest capacity boost there is.
- Rental income is haircut. Lenders typically count only 70-90% of rental income to allow for vacancy and costs, and policies vary widely - this matters enormously for investment loans, where the right lender choice can change the answer by six figures.
- Lender choice is a genuine lever. The same applicant can be offered materially different amounts across lenders because policies differ: HEM tables, negative gearing add-backs, how much bonus and overtime income is shaded (80% at one lender, 100% at another), and how casual or contract income is treated. This is precisely where a broker earns their keep - especially for first home buyers trying to stretch a deposit and a borrowing limit at the same time.
- Document expenses accurately. Cleaning up discretionary spending in the three months before applying - and being able to evidence it - can lift the number where a lender uses declared expenses above HEM.
Maximum borrowing is not sensible borrowing
One honest caution to finish. The number a lender approves is their assessment of what you can repay under stress - not what leaves you living comfortably. Economists remain split on whether the RBA moves again in August 2026, and a borrower at their absolute ceiling has no room if it does.
Our general guidance: know your maximum, then borrow with a margin below it. Leave space for another 0.25%, for life changes, and for a buffer of savings. If you'd like a realistic figure across multiple lenders - rather than one bank's calculator - book a free loan assessment and we'll model your actual scenario.
Figures in this article are indicative and simplified; actual outcomes depend on individual lender policies, which differ significantly and change without notice. This is general information only and does not take your personal circumstances into account - it is not personal financial or credit advice. Emerald Financial, Australian Credit Licence 000 000.