You might be earning the same income as you were six months ago, but that doesn’t necessarily mean you can borrow the same amount. Understanding your borrowing capacity is an important step before you start your home-buying journey.

Your borrowing capacity is influenced by a range of factors, and it can change over time, even if your income hasn’t. Interest rate fluctuations, regulatory settings, credit card limits, living expenses, existing debts, and lender policies can all affect how much a lender may be willing to lend you.

If you’re planning to buy, refinance or invest, it’s worth understanding where you stand before you start making property plans.

Here are some of the key factors that could affect your borrowing capacity.

Higher interest rates can reduce borrowing power

Interest rates have been a major focus in 2026, with multiple cash rate increases affecting how lenders assess borrowing capacity.

When rates rise, the amount a borrower may be able to access can reduce, as lenders need to consider the impact of higher repayments both today and into the future.

When assessing a home loan application, banks also apply a stress test using your interest rate, plus a 3% serviceability buffer. The Australian Prudential Regulation Authority (APRA) also requires banks and other authorised deposit-taking institutions to apply a serviceability buffer of 3 percentage points when assessing home loan applications. For example, if your home loan interest rate is 6%, the bank will assess you on a 9% rate. This allows lenders to test whether you can afford future interest rate hikes, but it also reduces your overall borrowing capacity.

High debt-to-income lending limits

From 1 February this year, the APRA introduced limits on high debt-to-income (DTI) lending. The main reason was to prevent a dangerous accumulation of risky lending. 

The cap limits banks to issue no more than 20% of new mortgages to borrowers with total debt above six times their gross annual income. This applies separately to owner-occupier and investor lending.

The DTI changes do not directly reduce your borrowing capacity, but rather functions as a portfolio cap for banks. So, if your combined debts (i.e. your existing mortgage, car loan, credit cards, and new home loan) push your DTI ratio to six times your gross annual income or more, home loan approval may be harder if your chosen bank has reached its 20% high-DTI limit.

Credit card limits can affect your assessment

Having multiple credit cards with high limits can negatively impact your borrowing capacity, even if you rarely use them or carry no outstanding balance. That’s because lenders treat your total available credit as an ongoing financial commitment when calculating how much they’re prepared to lend.

If you have credit cards you no longer need, closing unused cards before applying for a home loan may help improve your borrowing capacity and strengthen your loan application.

Living expense calculations

The Household Expenditure Measure (HEM) is a standard benchmark used by lenders to estimate your living expenses. Banks compare your declared expenses against the HEM.

If your real spending is lower than the HEM yardstick, the bank uses the higher figure anyway, which lowers your borrowing capacity.

Existing debts can reduce borrowing capacity

If you have multiple debts to service each month (e.g. a car loan, a HECS-HELP debt, and buy-now-pay-later commitments), these may impact your borrowing capacity. Lenders will look at all committed debt when assessing you as a borrower.

Debt consolidation may also be an option in some situations, but it needs to be considered carefully. Rolling short-term debt into a longer loan term can reduce repayments while increasing the total interest paid.

Different lenders may reach different answers

Did you know lenders may assess borrowing capacity differently? Some might be more open to self-employed borrowers, or offer more flexibility around HECS-HELP debt, for example.

Navigating different lender policies and borrowing requirements can be complex. This is where working with a mortgage broker can help. We can compare lending policies across a range of lenders and help identify options that suit your circumstances.

So, how much can you actually borrow?

Whether you’re looking to buy, refinance or invest, we can help you understand your current borrowing capacity and explore your options. Your borrowing capacity can change as interest rates, lender policies and your personal circumstances change.

We may even be able to suggest ways to improve your borrowing capacity, so get in touch and let’s get started.