Mortgage Borrowing Capacity Australia 2026: How Much Can You Actually Borrow?
Most Australians discover their borrowing limit only after sitting down with a lender — and the number is often lower than expected. With variable mortgage rates near 6.2% and lenders required to stress-test your finances at around 9.2% (3% above the variable rate), a $120,000 salary may support a loan of only $620,000–$680,000, depending on your debts and living expenses. Here is exactly how lenders calculate your borrowing capacity and what you can do to improve the number before you apply.
How Australian Lenders Calculate Borrowing Capacity
Borrowing capacity — also called serviceability — is the maximum loan amount a lender will approve based on their assessment of whether you can comfortably meet repayments. Australian lenders must comply with APRA (the Australian Prudential Regulation Authority) guidelines, which require them to assess your ability to repay the loan at a serviceability buffer of at least 3% above the loan's actual interest rate.
In practical terms, if your loan rate is 6.20%, the lender runs your numbers as if you were paying 9.20%. This is not a loan rate you will ever actually pay — it is purely a stress test. The buffer exists to ensure you could still service the loan if rates rise significantly after you settle.
Here is the basic formula lenders use:
- Calculate your gross income (salary plus acceptable secondary income)
- Deduct your committed expenses (HEM benchmark or actual, whichever is higher)
- Deduct existing debt repayments (credit cards, car loans, HECS, other mortgages)
- The remaining surplus is what you have available to service a new mortgage at the stressed rate
- Work backwards from that surplus to find the maximum loan amount
The HEM Benchmark: Why Your Actual Spending Often Does Not Matter
The Household Expenditure Measure (HEM) is a benchmark used by most Australian lenders when assessing living expenses. It represents a conservative estimate of living costs for a given household type and location, based on ABS data.
Lenders use the higher of your declared living expenses or the relevant HEM figure. This is important: even if you genuinely live frugally and spend less than HEM suggests, the lender will use the HEM minimum as the floor. The HEM for a single person in a major city is approximately $2,100–$2,500 per month. For a couple with two children, it can reach $4,200–$5,000 per month.
The ATO and ASIC have both noted that HEM was historically set too low, allowing lenders to approve larger loans than were genuinely prudent. In recent years, most lenders have tightened their HEM benchmarks and now ask more detailed questions about actual spending via bank statement analysis.
What Reduces Your Borrowing Capacity
The factors that reduce how much you can borrow are often more powerful than borrowers expect.
Existing Credit Card Limits
This is the most commonly overlooked factor. Lenders assess credit card limits — not just the amount you currently owe. A $20,000 credit card limit is treated as though you owe $20,000 at a rate of approximately 20%, producing a notional monthly repayment of around $600 in most lender models. That $600/month reduction in surplus serviceability can reduce your borrowing capacity by $75,000–$85,000. If you have credit cards you rarely use, consider reducing or cancelling them before applying.
Car Loans and Personal Loans
Every dollar you commit to existing loan repayments reduces the surplus available for mortgage serviceability. A $600/month car loan can reduce your maximum borrowing by $60,000–$80,000 depending on the lender. If you are close to paying off a car loan, it may be worth delaying your home loan application by a few months to eliminate that liability.
HECS-HELP Debt
HECS repayments are compulsory once you earn above the threshold ($54,435 in 2025-26) and are collected via the tax system. Lenders treat HECS as a committed expense because it directly reduces your take-home pay. On an $80,000 salary, the HECS repayment rate is 3.5%, meaning $2,800 per year or $233 per month comes off your disposable income — potentially reducing borrowing capacity by $25,000–$35,000.
Dependants
Each child adds to the HEM benchmark expenses lenders apply. A couple with two children may have their borrowing capacity reduced by $80,000–$120,000 compared to a couple with no children, purely due to the higher HEM allocation.
Being on a Fixed-Term or Casual Contract
Lenders want to see stable, ongoing income. If you are on a short fixed-term contract or casual employment, many lenders will reduce the income they use in their assessment, or decline altogether. Typically, permanent employment is assessed at 100% of salary. Casual income may be assessed at 80–90% if you have been with the same employer for 12+ months. Contractor income generally requires two years of tax returns.
Salary vs Maximum Borrowing Estimates (2026)
These figures assume a single applicant, principal and interest over 30 years, variable rate of 6.20% (stressed at 9.20%), no dependants, no existing debts, and living expenses assessed at the HEM benchmark for a major city.
| Gross Annual Salary | Estimated Maximum Borrowing | Income Multiple | Approx Monthly Repayment (6.20%) |
|---|---|---|---|
| $70,000 | $360,000–$400,000 | 5.1–5.7x | $2,191–$2,434 |
| $90,000 | $460,000–$520,000 | 5.1–5.8x | $2,799–$3,164 |
| $120,000 | $620,000–$690,000 | 5.2–5.75x | $3,773–$4,199 |
| $150,000 | $790,000–$880,000 | 5.3–5.9x | $4,808–$5,356 |
| $200,000 | $1,050,000–$1,180,000 | 5.25–5.9x | $6,391–$7,183 |
| $250,000 | $1,310,000–$1,470,000 | 5.24–5.88x | $7,974–$8,949 |
These are estimates only. Different lenders assess income and expenses differently, so your actual limit will vary. Use our mortgage calculator to model specific scenarios.
Worked Example: $120,000 Salary
Here is how a lender might actually process a borrowing capacity assessment for a single applicant earning $120,000 gross per year, with a $15,000 credit card limit, a $350/month car loan repayment, and a $35,000 HECS debt.
Step 1: Net income after tax and Medicare levy. On $120,000, tax is approximately $29,467 and Medicare levy is $2,400, giving a net income of approximately $88,133 per year, or $7,344 per month.
Step 2: Deduct HECS repayment. At a 4.5% HECS rate on $120,000, that is $5,400 per year or $450 per month. Monthly take-home drops to $6,894.
Step 3: Deduct HEM living expenses. For a single person in a major city, HEM is approximately $2,400 per month. Remaining surplus: $4,494.
Step 4: Deduct existing debt repayments. Car loan: $350/month. Credit card limit: $15,000 treated as $450/month. Total debt deductions: $800/month. Remaining surplus: $3,694.
Step 5: Calculate maximum loan at stressed rate. At 9.20% stressed rate over 30 years, a monthly repayment of $3,694 supports a loan of approximately $429,000.
Now compare if those debts did not exist: with the same income and no existing debts, the surplus of $4,494 at 9.20% stress rate supports a loan of approximately $521,000 — a difference of $92,000 purely from the car loan and credit card limit.
What Improves Your Borrowing Capacity
Reduce or cancel credit card limits. As shown above, a $15,000 credit card limit can reduce your borrowing by $75,000+. Cancel cards you do not need, and reduce limits on cards you keep.
Pay off or pay down car loans and personal loans. Even reducing a car loan balance so the remaining term shortens can help, but full repayment is most effective.
Apply jointly. A joint application with a second income nearly doubles borrowing capacity (subject to combined expense assessment). A couple both earning $80,000 combined will generally borrow more than a single person on $160,000 because lenders see two separate income streams.
Increase your deposit. A larger deposit reduces the loan amount needed and may help you cross into a lower LVR tier, which sometimes unlocks higher borrowing limits with certain lenders. It also eliminates or reduces LMI — more on this in our LMI guide.
Wait for a rate cut. Each RBA rate cut of 0.25% increases borrowing capacity for a given income level by roughly 2.5%. If rates fall by 0.50% over the next 12 months, a borrower on $120,000 might see their maximum loan increase by $15,000–$25,000.
Use a mortgage broker. Lenders calculate HEM and income differently, so the same applicant can receive borrowing capacity assessments that vary by $50,000–$100,000 between lenders. A mortgage broker can identify which lender's model is most favourable for your specific income and expense profile.
Frequently Asked Questions
- How much can a single person borrow on a $100,000 salary in Australia?
- A single applicant on $100,000 gross with no existing debts and no dependants can typically borrow $510,000–$580,000 from major lenders in 2026. The exact figure depends on living expenses, lender-specific HEM benchmarks, and whether any secondary income applies. Use the mortgage calculator for a tailored estimate.
- Does HECS debt reduce my mortgage borrowing capacity?
- Yes, significantly. HECS repayments are treated as committed expenses because they reduce your take-home pay. On a $100,000 salary, HECS reduces your borrowing capacity by approximately $25,000–$40,000 compared to someone with no HECS debt. Paying off your HECS voluntarily before applying for a home loan can therefore increase your borrowing limit — though you should weigh this against the fact that HECS is interest-free (indexed to CPI only).
- Do lenders look at my actual expenses or use a benchmark?
- Both. Lenders use whichever is higher: your declared actual expenses or the HEM benchmark. So even if you spend very little, the lender will assume you spend at least the HEM minimum. In recent years, lenders have also begun analysing bank statements more carefully to verify declared expenses.
- Can I get a bigger mortgage by using a different lender?
- Yes, borrowing capacity can vary by $50,000–$100,000 between lenders for the same applicant. This is because lenders use different HEM tables, treat income types differently, and apply different stress test rates for fixed vs variable loans. A mortgage broker can compare these differences across multiple lenders.
