Why the APRA buffer and HEM matter
Many online borrowing power tools produce inflated figures because they skip two rules every Australian bank must follow. The first is the APRA 3% serviceability buffer: your ability to repay is stress-tested at the loan rate plus 3%, so a 6.5% loan is assessed at 9.5%. The second is the Household Expenditure Measure (HEM): lenders substitute this Melbourne Institute benchmark if your declared living expenses fall below it. Together these two rules mean your realistic borrowing capacity is often 20–30% lower than a simple income-multiple would suggest.
This calculator applies both rules to give you a figure that more closely matches what a bank will actually approve. The result is a starting point — your final approval will also depend on your credit history, the specific lender's policies, and any changes in income between now and settlement.
Frequently asked questions
What is borrowing power?
Borrowing power (also called borrowing capacity) is the maximum amount a lender will let you borrow based on your income, expenses and existing debts. It is not the same as how much you can comfortably afford — lenders apply conservative buffers so the figure they calculate is deliberately lower than your theoretical maximum. The figure from this calculator is a guide; your actual approval will depend on your full credit profile and the specific lender's policies.
What is the APRA 3% serviceability buffer?
Since October 2021, APRA (Australia's banking regulator) has required all banks and authorised lenders to assess your ability to service a loan at the actual interest rate plus 3%. So if you are borrowing at 6.5%, the lender must confirm you could still make repayments if the rate rose to 9.5%. This single rule can reduce your maximum loan by 20–30% compared to a simple income-multiple calculation — which is why this calculator's result is more conservative than many online estimates.
What is HEM and how does it affect my borrowing capacity?
HEM stands for Household Expenditure Measure — a quarterly benchmark published by the Melbourne Institute and used by all major Australian banks as a minimum floor for living expenses. Even if you declare lower expenses, the bank will substitute the HEM figure for your household type. Banks use MAX(your declared expenses, HEM). This calculator shows a HEM estimate based on your household composition; if HEM is higher than what you entered, the calculation uses HEM automatically and flags it in the results.
How do credit cards reduce borrowing power in Australia?
Banks assess credit card risk on the limit, not the balance. The standard assessment rate is 3.8% of the total credit card limit per month — this represents the risk of you drawing the card down fully. A $10,000 combined credit card limit reduces your assessed monthly income available for a mortgage by $380, which can translate to $30,000–$50,000 less in borrowing power. If you have unused credit cards, reducing or cancelling their limits before applying for a mortgage can meaningfully increase what you can borrow.
What is the difference between borrowing power and maximum purchase price?
Borrowing power is the loan amount the bank will approve. The maximum purchase price is higher because you also contribute a deposit. This calculator assumes a standard 20% deposit: maximum property price = borrowing power ÷ 0.8. At a 10% deposit the property price would be borrowing power ÷ 0.9 — but you would also need to pay Lenders Mortgage Insurance (LMI), which adds thousands to your costs. Most buyers target 20% to avoid LMI.
How can I increase my borrowing power in Australia?
The most effective levers are: (1) reduce credit card limits — each $10,000 in unused card limit costs you ~$30,000–$50,000 in borrowing capacity; (2) pay off or close personal and car loans before applying; (3) increase income — either through salary growth, a co-borrower, or documented rental/other income; (4) reduce declared living expenses to their accurate (not inflated) level; (5) extend the loan term from 25 to 30 years, which reduces the required monthly repayment at the assessment rate. Shopping around between lenders also helps, as HEM benchmarks and assessment policies vary slightly.