Knowing how much you can borrow in 2026 is the first step to buying a home – but the number a lender gives you depends on more than just your salary. Australian banks apply a detailed formula that includes your income, fixed expenses, dependants, credit card limits, and the buffer the Australian Prudential Regulation Authority (APRA) requires.
In this guide, we break down exactly what lenders assess in mid-2026, how the borrowing power formula works, and what you can do to maximise your loan amount. We also look at what the new First Home Buyer Guarantee (FHBG) limits and the APRA debt-to-income (DTI) cap mean for your borrowing capacity.
What is borrowing power and why does it change in 2026?
Borrowing power – often called serviceability – is the maximum loan amount a lender will offer you based on your ability to repay. It’s not the same as the property price you can afford, because you also need a deposit. But in 2026, several factors are tightening or loosening the amount lenders will approve.
The Reserve Bank of Australia (RBA) has held the cash rate at 4.35% since late 2023, and most economists expect the first cut in early 2027. Meanwhile, the lowest variable home loan rates available to well-qualified borrowers sit around 5.69% . The gap between the cash rate and actual mortgage rates remains wider than usual because banks are factoring in higher funding costs.
APRA’s serviceability buffer remains at 3% as of July 2026, meaning lenders must assess your ability to repay at an interest rate at least 3% higher than the offered rate. So if you’re applying for a loan at 5.69%, the assessment rate is at least 8.69%. This buffer alone can reduce your borrowing capacity by 20% or more compared to a world without the buffer.
Additionally, from February 2026, APRA introduced a debt-to-income (DTI) cap of 6 times income for new loans. Lenders can still approve loans above that ratio, but they must apply additional scrutiny. In practice, many lenders are now capping DTI at 6x, especially for borrowers with lower deposits or less stable income.
The full borrowing power formula in 2026
Lenders don’t just look at your salary. They apply a standardised formula used by every major Australian bank. Here’s how it works, step by step.
Step 1 – Calculate your total verified income
Your gross annual income is the starting point. Lenders will take your base salary, any regular overtime, bonuses that have been consistent for at least two years, rental income (usually at 80% of the gross amount), and government payments such as Family Tax Benefit or Child Support (provided they are ongoing and verifiable).
Self-employed borrowers need two years of tax returns and ATO notices of assessment. Lenders typically average the last two years’ net profit, then add back some non-cash deductions like depreciation. In 2026, lenders have become more conservative with self-employed income, often requiring a minimum of 12 months of GST returns in addition to tax returns.
What counts as income in 2026
· Base salary (any industry, any hours – as long as it’s permanent) · Regular overtime averaged over 12 months · Bonuses and commissions (minimum 1–2 years history) · Rental income (lenders apply a 20% buffer for vacancies and maintenance) · Government benefits (Family Tax Benefit, Parenting Payment, Carer Allowance) · Child support received (must be documented through the Child Support Agency)
What does not count: casual income without 6–12 months history, one-off bonuses, investment returns that are not regular, or income from a side business with less than 12 months of trading.
Step 2 – Apply the assessment interest rate
The lender will look at the interest rate they are offering you, add APRA’s 3% buffer, and use that higher rate to calculate your monthly repayments. For example, if your loan rate is 5.69%, the assessment rate is 8.69%. On a $500,000 loan over 30 years, your actual repayment might be $2,890 per month, but the assessed repayment used in the formula is $3,918 per month – that’s more than $1,000 extra per month the lender assumes you could handle.
This buffer exists to ensure you can still service your loan if interest rates rise sharply. In 2026, with the cash rate still elevated, the buffer is a major reason why borrowing power is lower than it was in 2021–2022.
Step 3 – Deduct your living expenses (HEM)
Lenders do not use your actual spending. They use the Household Expenditure Measure (HEM) , a statistical benchmark based on your household size and income. HEM is split into two tiers: a “basic” level and a “moderate” level. Most applicants are assessed at the moderate HEM, which assumes higher spending.
For a single person earning $100,000, the moderate HEM is around $1,800 per month. For a couple with two children earning $150,000 combined, it’s closer to $3,600 per month. These figures are updated annually by the Melbourne Institute and are typically higher than what most people actually spend on living costs.
Lenders may apply a further buffer of 10–20% on top of HEM if your declared expenses are significantly higher. The key point is that HEM is the minimum expense used; the lender will take the greater of HEM or your declared expenses. If you claim very low expenses, the lender will default to HEM.
Step 4 – Account for existing debts and commitments
Any existing financial obligations reduce your borrowing power directly. Lenders look at:
· Credit cards – Even if you have a $10,000 limit and zero balance, the lender assumes you will draw the full limit. They use a minimum monthly repayment of 2–3% of the limit, so a $10,000 card adds $200–$300 per month to your assessed outgoings. Closing or reducing unused cards can increase your borrowing capacity significantly.
· Personal loans, car loans, HECS/HELP debts – These are assessed at their actual minimum repayments. HECS/HELP is particularly important in 2026 because many graduates have higher debts after indexation. The lender will use the ATO’s minimum compulsory repayment (based on income), not the actual payment you choose.
· BNPL services (Buy Now Pay Later) – Lenders now treat these as ongoing debts. Even if you pay them off monthly, they factor in a typical monthly commitment (e.g., $200 for a $1,000 limit). If you don’t use BNPL, it’s wise to close the accounts before applying.
· Child support payments – If you pay court-ordered support, the full amount is deducted from your net income.
Step 5 – Apply the DTI cap
From February 2026, APRA’s DTI cap of 6x income applies. That means if you earn $100,000, your maximum loan is capped at $600,000 unless you meet special conditions. For couples earning $180,000, the cap is $1,080,000.
Some lenders allow up to 7x if you have a very good credit score, a deposit above 20%, and strong savings history. But most major banks are sticking to 6x as their hard limit. If your borrowing capacity based on income and expenses would be higher than the DTI cap, the cap becomes the final limit.
The DTI cap is applied at the time of application. If interest rates fall and your repayments reduce, the cap remains the same. It is designed to prevent households from taking on excessive debt relative to their income.
Step 6 – Add proposed property costs
For investment properties, lenders use rental income (at 80% of market rent) to offset the loan repayments. This can increase your borrowing power, but only for investment loans. Owner-occupiers cannot use rental income unless they actually own an investment property.
Additionally, lenders factor in property-specific costs such as strata fees, council rates, and insurance. For apartments, these costs are higher and can reduce your borrowing capacity by $50–$150 per month.
How much can a typical borrower get in 2026?
To give you a concrete answer, here are three scenarios. Assume the applicant has no credit card debt, no other loans, and living expenses assessed at the moderate HEM.
Scenario 1 – Single person, $90,000 income
· Maximum loan under standard serviceability: $430,000 · DTI cap (6x $90,000): $540,000 · Effective limit (lower of the two): $430,000 · With a 20% deposit ($107,500), maximum property price: $537,500
Scenario 2 – Couple, $150,000 combined income
· Maximum loan under standard serviceability (two adults, no dependants): $720,000 · DTI cap (6x $150,000): $900,000 · Effective limit: $720,000 · With a 20% deposit ($180,000), maximum property price: $900,000
Scenario 3 – Couple with two children, $120,000 combined income
· HEM expenses higher (family of four), so serviceability tighter · Maximum loan under standard serviceability: $480,000 · DTI cap (6x $120,000): $720,000 · Effective limit: $480,000 · With a 10% deposit ($53,333), maximum property price: $533,333
These figures are indicative and will vary by lender. Some smaller lenders or non-bank lenders have slightly more flexible HEM assumptions or higher DTI limits, but they often charge higher interest rates.
New First Home Buyer Guarantee (FHBG) limits from July 2026
If you’re a first home buyer, the FHBG – now administered by Housing Australia – allows you to buy with a 5% deposit with no Lenders Mortgage Insurance (LMI). From July 2026, the price caps have been updated and the income cap has been removed entirely. Here are the new maximum property values:
· Sydney – $1,500,000 · Brisbane – $1,000,000 · Melbourne – $950,000 · Perth – $850,000 · Adelaide, Canberra, and regional centres – lower caps, typically 80–90% of the capital city limit
The removal of the income cap means that even high-income earners can use the scheme, as long as they are first home buyers and the property price is within the cap. However, the lender still applies the standard borrowing power formula. If your borrowing capacity doesn’t cover the deposit gap (95% LVR), you can still use the scheme – the government guarantees the remaining 15% of the loan, meaning you need only a 5% deposit.
Important : The FHBG does not increase your borrowing power. It reduces the deposit you need. You still need to qualify for the loan amount based on your income and expenses. For example, if the property costs $900,000 and you have $45,000 (5%), you still need to be able to service a $855,000 loan. That requires a combined income of around $140,000–$160,000 depending on dependants.
Strategies to improve your borrowing power in 2026
If your borrowing capacity is lower than expected, you can take several steps:
Reduce or close credit cards – Every credit card with a limit above $1,000 reduces your capacity. Closing cards takes 2–3 weeks to reflect on your credit file, so do it before applying.
Pay down personal debts – Even small HECS or car loans reduce your capacity. If you can pay off a car loan early, you can increase your borrowing power by the monthly repayment amount.
Increase your deposit – A larger deposit means a smaller loan amount needed. Even an extra 1% deposit can help you stay within the DTI cap.
Consider adding a co-borrower – Adding a parent or partner with income can significantly boost your borrowing power, but they must be willing to be liable for the debt.
Switch to a lender with a lower assessment rate – Some lenders use a slightly lower buffer (e.g., 2.8% instead of 3%), which can increase your borrowing capacity by 3–5%. But be careful – if rates rise, you might struggle.
Improve your credit score – A higher score (above 750) may qualify you for some lenders’ more flexible DTI limits. Pay all bills on time and correct any errors on your credit report.
Frequently asked questions
Q1: I have a $15,000 credit card limit with no balance. How much does it reduce my borrowing power?
A: Lenders assume a minimum repayment of 2–3% of the limit. At 3%, that’s $450 per month. On a 30-year loan at 5.69% assessment rate (8.69% with buffer), $450 per month reduces your borrowing capacity by roughly $60,000–$70,000. Closing or reducing the limit to $2,000 would add that amount back.
Q2: My partner and I earn $130,000 combined. We have a HECS debt of $20,000 and one car loan of $350 per month. How much could we borrow?
A: Assuming no credit cards and two adults, HECS minimum repayment at $130k income is about $200 per month (based on ATO rates). Total commitments = $550 per month. Assessed living expenses (HEM moderate) around $2,800 per month. Serviceability would likely produce a maximum loan of $550,000–$600,000 before the DTI cap. With DTI at 6x $130k = $780,000, the effective limit is $550,000–$600,000. With a 10% deposit ($61,000–$66,000), property price up to $660,000–$666,000.
Q3: I’m self-employed and earned $80,000 last year, $95,000 the year before. How will a lender assess my income in 2026?
A: Most lenders average the last two years’ net profit, so $87,500 per year. Some will also look at your most recent year if it’s higher. You’ll need two years of tax returns and ATO assessments. Some lenders now require 12 months of BAS statements. If you have strong business cash flow and a good credit score, you may still get approved for a loan of around $400,000–$450,000 (based on income) before DTI cap.
Q4: Can I use the First Home Buyer Guarantee with a 5% deposit if my income is high?
A: Yes, from July 2026 there is no income cap. You only need to meet the property price cap for your city. For example, in Sydney you can buy up to $1.5 million with 5% down ($75,000). But you still need to service the $1,425,000 loan, which requires a combined income of roughly $200,000 or more with no other debts.
Q5: What is the current DTI cap and does it apply to investment loans?
A: The DTI cap is 6x gross income for new residential mortgages from February 2026. It applies to both owner-occupier and investment loans. If you have a $120,000 income, you cannot borrow more than $720,000 even if serviceability calculations say you can. Some lenders allow up to 7x for borrowers with very strong profiles, but the majority cap at 6x.
Sources
- Australian Prudential Regulation Authority (APRA) – Macroprudential measures and DTI cap update, February 2026.
- Reserve Bank of Australia (RBA) – Cash rate target and monetary policy statements, 2026.
- Housing Australia – First Home Buyer Guarantee scheme cap changes effective July 2026.
- Melbourne Institute – Household Expenditure Measure (HEM) data, 2025–2026 update.
- State Revenue Offices – Transfer duty and first home buyer concessions (NS
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