The number one question I get from first home buyers is: how much can I borrow? And the honest answer is: it depends on more than your income, and the online calculators are usually wrong.
Not wrong in a catastrophic way. But wrong enough that people get a nasty surprise when they sit down with an actual lender and discover they can borrow $80,000–$120,000 less than the calculator suggested. Here’s why.
The Serviceability Buffer
Lenders don’t assess your ability to repay at the current rate. They assess it at the current rate plus 3%. This is an APRA requirement introduced to ensure people don’t over-extend if rates rise.
So if your loan rate is 6.2%, you’re assessed at 9.2%. On a $700,000 loan, that means your monthly repayments are calculated at around $5,800, not the $4,300 you’d actually pay. That higher number is what they use to determine whether you can afford it.
Most online calculators don’t apply this buffer. Or they bury it in a small print setting that nobody changes. The result is a number that looks better than reality.
HEM — The Hidden Expense Benchmark
When you apply for a loan, you declare your living expenses. Mortgage broker or direct to bank, you’ll fill out a form listing your groceries, utilities, insurance, subscriptions, entertainment, and so on.
Here’s what most people don’t know: the lender also has a benchmark called HEM — the Household Expenditure Measure — which is a database of average Australian spending by household size and location. If your declared expenses are lower than HEM, the lender uses HEM instead.
If you’re a couple in Sydney with two kids saying you spend $3,500/month on living costs, but HEM puts that household at $4,500/month, the lender will use $4,500. Your borrowing capacity drops accordingly. Honesty is the right approach here — not because you’ll get caught lying, but because accurate expenses actually lead to more accurate capacity calculations that set realistic expectations.
HECS Debt: Bigger Impact Than People Expect
This is the one that surprises people the most. HECS (now HELP) debt reduces your borrowing capacity significantly — not because lenders count it as a traditional debt, but because repayments come out of your pre-tax income on a sliding scale.
Real numbers:
- Single person earning $150,000/year with no debts: approximately $700,000–$730,000 borrowing capacity
- Same person with $60,000 HECS debt: approximately $620,000–$650,000
That’s an $80,000 difference from a debt that barely feels like a debt day-to-day. On a $150k salary, HECS repayments are compulsory at around 8–9% of income — that’s roughly $12,000/year coming out before you see it. Lenders count it.
What Else Kills Borrowing Capacity?
In rough order of impact:
- Car loans and personal loans: Every $500/month in repayments reduces borrowing capacity by roughly $80,000–$100,000
- Credit card limits: Not balances — limits. A $20,000 credit card limit you never use still reduces your borrowing capacity. Lenders assume you could max it out. Cancel credit cards you don’t need before applying.
- Buy now, pay later: Afterpay, Zip, Klarna — these are appearing on credit assessments. Small amounts, but they add up in a lender’s view of your spending behaviour.
- Dependants: Each child adds to HEM and reduces available income for servicing. A couple with three kids has a very different capacity to a DINK couple on the same income.
The Income Part
Gross income is what lenders use — but not all income counts equally. Base salary counts at 100%. Overtime, bonuses, and commission typically count at 80% (averaged over two years). Casual income is assessed differently again. Self-employed income is based on your average taxable income over two years, which is why some self-employed borrowers with strong cash flow get less than they expect if their tax returns show a lower number.
So What’s a Realistic Number?
Here are some rough benchmarks for Sydney applicants (variable rate environment, 2025):
- Single, $100k salary, no dependants, no debt: ~$480,000–$520,000
- Single, $150k salary, no dependants, no debt: ~$700,000–$730,000
- Couple, $200k combined, no dependants, no debt: ~$900,000–$1,000,000
- Couple, $200k combined, two kids, $30k HECS each: ~$700,000–$750,000
These are rough. Your actual number depends on your specific expenses, debts, income type, and which lender’s assessment model you go through. Different lenders can give you different results — sometimes by $100,000 or more — because they each use their own version of serviceability calculations.
Why It’s Worth Getting a Real Assessment
A calculator tells you a number. A broker tells you your number — specific to your income, debts, expenses, and which lender will look most favourably on your situation. Sometimes the difference between borrowing $650k and $750k is just applying with the right lender.
Get a real assessment from Loan Connect. We’ll look at your full picture, give you a genuine borrowing capacity estimate, and tell you which lender is most likely to approve you and at what amount. No cost, no obligation — just an honest answer. Book a chat today.
