If you have walked into a bank lately and been told your borrowing power is lower than you expected, you are not alone. Across Sydney right now, buyers, refinancers and first home buyers are getting figures that feel disconnected from their income — and often they are right to question them.
Borrowing power is not a fixed number. It shifts with interest rates, lender policy, your personal financial profile, and even which lender you apply to. Two people with identical incomes can receive wildly different figures depending on where they go. Understanding what drives borrowing power — and how to genuinely improve yours — is one of the most practical things you can do before you start making offers or signing contracts in Sydney.
How Lenders Calculate What You Can Borrow
Every lender in Australia calculates borrowing power using a serviceability assessment. The concept is simple: they take your income, subtract your living expenses and existing debt commitments, and work out how much loan repayment you can comfortably afford.
The complication is in the detail. APRA requires lenders to stress-test every applicant at a buffer of 3% above the offered rate. With most standard variable rates sitting around 6.2% to 6.7% in August 2026, that means lenders are assessing your ability to service the loan at roughly 9.2% to 9.7%. That gap between what you actually pay and what you are assessed at is the single biggest reason borrowing power has tightened so much since 2022.
Add to that the Household Expenditure Measure (HEM) — a benchmarked minimum living cost figure — and most lenders are essentially assuming you spend more than you actually do. If your real expenses are lower than HEM, that does not automatically help you; lenders will use whichever figure is higher.
What Is Realistic for Sydney in 2026
Let us put some numbers on it. A couple in Sydney earning a combined $160,000 with no existing debt and minimal credit card limits can generally borrow somewhere between $750,000 and $850,000 — depending heavily on the lender. A solo income earner on $95,000 is looking at roughly $430,000 to $510,000 under current conditions.
These figures have dropped significantly from the peaks of 2021, when the same profiles could borrow $100,000 to $200,000 more. The culprit is the buffer rate, which at the time was just 2.5% and applied to much lower variable rates. That environment is gone, at least for now.
The good news for buyers is that property prices in many Sydney suburbs have softened through 2026. Outer ring suburbs — areas like Liverpool, Campbelltown, Penrith and parts of the Hills District — have seen price corrections of 5 to 8% from their 2022 highs. That means the gap between what many buyers can borrow and what they need to spend has narrowed, even without borrowing capacity itself improving.
The Biggest Factors Dragging Down Your Borrowing Power
Most people are surprised by how much certain financial habits reduce what a bank will lend them. Here are the most common ones we see at Loan Connect:
- Credit card limits, not balances. Banks assess you on the full limit of every credit card you hold, not what you actually owe. A $15,000 limit card you barely use can reduce your borrowing power by $60,000 to $80,000. If you are not using it, cut the limit or close it before applying.
- Buy Now Pay Later accounts. Afterpay, Zip, Klarna — any open BNPL account is treated as a liability commitment. Close anything you are not actively using.
- Personal loans and car finance. These hit serviceability hard. A $500 per month car loan repayment can reduce your borrowing power by $100,000 or more depending on the lender and remaining term.
- Investment property negative cashflow. If your investment property costs more than it earns, the shortfall chips away at your assessed income. Lenders use a rental shading factor — typically 80% of gross rent — to model the income side.
- Inconsistent or self-employed income. Banks want to see two years of tax returns for self-employed borrowers and will typically average the two figures. A strong recent year does not always help if the prior year was lean.
How to Genuinely Increase Your Borrowing Power
Some of this is within your control before you apply, and the impact is bigger than most people expect.
Reduce your credit card limits. This is one of the fastest wins. Contact your bank, reduce limits to the minimum you need, and give it a few weeks before applying. The change shows up quickly.
Pay down or close personal debts. If you have six months left on a personal loan, sometimes it is worth clearing it entirely before applying. The serviceability math on that can work strongly in your favour.
Add a co-borrower or guarantor. A partner’s income — even part-time — materially improves what you can borrow. A parental guarantor using family equity can also allow you to borrow at a higher LVR without paying LMI, which means a smaller loan for the same purchase.
Look at lenders with more generous assessment models. This is where working with a broker makes a real difference. Some lenders calculate HEM more generously. Some have lower floor rates on investment loans. Some will accept a higher proportion of overtime or bonus income. None of this is information your bank will volunteer to you — it only comes from someone with access to the full lending market.
Fix your credit report before you apply. Defaults, late payments, or a flood of recent enquiries can all reduce what lenders will offer. Get a free copy of your credit file via CreditSavvy or Equifax before you start, and address anything that looks wrong.
Lender Differences Are Larger Than You Think
Here is something most borrowers do not realise until they have been through the process: two major lenders can return a $100,000 to $150,000 difference in borrowing capacity for exactly the same applicant. This is not a rounding error — it reflects genuinely different policy positions on HEM benchmarks, buffer application, income treatment and debt-to-income caps.
The big four banks have gotten stricter on debt-to-income ratios in 2026. Several now apply a hard cap of six times gross income. Non-bank lenders and second-tier majors — think Macquarie, ING, Bankwest — often have more flexibility, particularly for professionals, self-employed borrowers, and those with complex income structures.
A broker who runs your full profile across multiple lenders will show you a realistic range, not just one number from one institution. For Sydney buyers where a $50,000 shortfall is the difference between getting into a suburb you want and settling for one you do not, that comparison is worth doing properly.
When to Get a Borrowing Power Assessment
The answer is: before you start looking at property. Not three weeks into inspections when you have already fallen in love with a place and made an offer subject to finance. Starting with a clear picture of your actual capacity — and what you could do to improve it before applying — is how buyers avoid disappointment and make better decisions with their time.
We do free borrowing power assessments at Loan Connect for buyers at every stage — whether you are eighteen months out or ready to buy in the next sixty days. We will look at your full picture, run your profile across our lender panel, and give you honest numbers rather than optimistic ones. Get in touch here and we can book a call at a time that suits you.
