If you’ve been thinking about buying a home in Sydney this year, there’s one number that matters more than the listing price, more than the suburb median, and more than your deposit: your borrowing power.
Borrowing power — what the banks will actually lend you — has been squeezed hard over the past few years. And in 2026, with the RBA holding the cash rate steady at 4.35% and some economists tipping possible further rises, knowing where you stand before you start inspecting is more important than ever.
Why Borrowing Power Is Tighter Than It Looks
Here’s something most buyers don’t realise: banks don’t assess your loan at the actual interest rate you’ll be paying. They’re required by APRA to add a 3% serviceability buffer on top. So if your lender’s variable rate is 6.2%, they’re stress-testing your repayments at 9.2%.
That buffer alone can reduce your borrowing capacity by $100,000 or more compared to what the same income would have qualified for in 2020. Add in inflation’s impact on living expenses — which lenders now assess more rigorously through the Household Expenditure Measure — and you’ve got a double squeeze.
For a Sydney buyer earning $150,000 a year with no debts, most major banks will currently lend somewhere in the range of $800,000 to $900,000. That’s a wide range — and the difference often comes down to which lender you’re with and how your finances are structured.
What Actually Affects Your Borrowing Power
Most people focus on income. Income matters, but it’s not the only lever. Here are the factors that genuinely move the needle:
1. Existing Debts and Credit Limits
That $15,000 credit card you never use? Lenders count the full limit as a potential liability — not just the balance. If you’ve got two cards with $10,000 limits and a car loan, that alone could reduce your borrowing capacity by $60,000 to $80,000. Closing unused credit cards before applying can make a real difference.
2. How Your Income Is Assessed
PAYG salary is straightforward. But if you’re self-employed, rely on overtime, bonuses, or commission, or have rental income, lenders apply discounts. Self-employed borrowers typically need two years of tax returns, and lenders often use the lower of the two years — or average them. Some lenders are more generous here than others, which is why the right lender for your situation isn’t always the biggest bank.
3. Number of Dependants
Kids are wonderful. They’re also expensive, and lenders know it. Each dependant adds to your assessed living expenses, which reduces what you can borrow. It’s not a huge number per child, but it adds up — and it’s another reason why comparing lenders matters rather than just going to your existing bank.
4. The Loan Structure You Choose
Choosing interest-only repayments typically reduces your borrowing power compared to principal and interest, because the lender assesses P&I repayments regardless. Similarly, the loan term you choose affects the monthly repayments used in the stress test — a 25-year term means higher monthly repayments in the calculation than a 30-year term.
The Sydney Reality in 2026
Sydney’s median house price is hovering around $1.4 million as of mid-2026. That means most buyers need to borrow north of $1 million if they have a 20 to 30 percent deposit, or face Lenders Mortgage Insurance (LMI) if they’re going in with less.
The Family Home Guarantee and First Home Guarantee schemes are still active for eligible buyers, letting you purchase with as little as a 2% or 5% deposit without paying LMI. These schemes have limited spots each financial year — it’s worth checking availability now rather than waiting until you’ve found the property you want.
For borrowers with a joint income of $200,000 and solid employment history, the $1 million mark is typically achievable — but you need the right lender and the right structure. A couple where one partner is self-employed and one is PAYG will be assessed very differently to two PAYG earners on the same total income.
What You Can Do to Improve Your Position
The good news: borrowing power isn’t fixed. Here’s what actually moves it:
- Pay down or close credit cards and personal loans before applying — or well before, so the changes show in your credit file
- Reduce buy-now-pay-later accounts (Afterpay, Zip, etc.) — lenders treat these as liabilities
- Get your tax returns up to date if you’re self-employed — stale financials cause delays and often trigger lower assessments
- Avoid switching jobs in the six months before you apply — probationary employment is assessed differently
- Compare lenders properly — different banks use different living expense models and income calculations, and the spread in what they’ll lend you can be $100,000+
Rate Outlook: Fix or Stay Variable?
With rates on hold and some major banks tipping possible increases later in 2026, the fixed vs. variable question is back on the table. Most economists have pencilled rate cuts in for 2027 rather than this year.
A fixed rate gives you certainty — you know your repayments won’t move. Variable rates let you make extra repayments freely and ride any rate drops when they come. A split loan — part fixed, part variable — is often the middle ground that makes sense for buyers who want some protection but don’t want to lock everything in.
What’s right depends on your income stability, how much buffer you have in the budget, and your plans for the property. There’s no universal right answer — it needs to be worked out based on your actual numbers.
Get an Accurate Number Before You Start Looking
The worst thing you can do is inspect properties, fall in love with something, and then find out the bank won’t lend you enough to secure it. Or the opposite — hold back from making an offer because you underestimated your capacity.
A pre-approval or a genuine borrowing power assessment — not just an online calculator — gives you a real number based on your actual income, debts, and circumstances. It puts you in a much stronger position at auction or during negotiations.
If you want to know exactly where you stand before you start looking in Sydney this year, talk to us at Loan Connect. We work across all the major lenders and a range of specialist lenders — and we’ll give you a straight answer on what you can borrow and how to structure it to get there.