New · Updated for APRA's 2026 lending settings
Borrowing Strategy
Why your borrowing power is lower than it was three years ago
Your income went up. The bank says you can borrow less. It is rarely personal... here is what actually changed.
A question I get almost every week, usually from someone who has just been knocked back for a top-up or a pre-approval they expected to sail through:
Why does the bank say I can borrow less now than I could three years ago, when my income has actually gone up?
Fair question. The honest answer is going to feel slightly impersonal... and it mostly is. When you apply for a home loan in Australia, the bank doesn’t assess you at your actual interest rate. They assess you at your rate plus a buffer. Three things have moved against that calculation since 2021, and only one of them is about you.
01The serviceability buffer
In October 2021, APRA (the regulator that sets the rules banks lend by) increased the minimum serviceability buffer from 2.5% to 3.0%. It is still 3.0% today... APRA confirmed it would stay there in its most recent review on 28 May 2026. The serviceability calculation that determines your borrowing capacity uses that buffered number, not what you actually pay.
Same income, different era
2021
Rates near 2%
2021
Rates near 2%
Actual rate around 2%, buffer 2.5%, so the bank assessed you at roughly 5%. Borrowing capacity for a given income looked generous.
2026
Rates in the high 6s
2026
Rates in the high 6s
Actual rate around 6.5%, buffer 3.0%, so the bank assesses you at about 9.5%. Same income. Smaller number.
02HEM: the living-expense benchmark
The second piece is HEM, the Household Expenditure Measure. It is the living-expense benchmark lenders apply when they assess your application, and it has moved up with inflation over the past three years. Higher assessed living expenses mean a smaller assessable surplus, which means less room to service a loan.
So your borrowing power has tightened in two ways at once: the rate you are tested at went up, and the expenses you are assumed to carry went up. That is most of the story, and none of it is personal.
03New in 2026: the debt-to-income limit
There is a third factor that did not exist three years ago. From February 2026, APRA activated a formal debt-to-income (DTI) limit. Lenders can now write no more than 20% of their new mortgage lending to borrowers whose total debt is six times their income or more, and the cap applies separately to owner-occupier and investor lending.
For most first-home buyers this rarely bites. For investors and higher-income borrowers carrying existing debt, it can. If your total borrowing is pushing past six times your income, the pool of lenders with room to take you under their DTI cap narrows, and the ones with space may price or assess you more conservatively. It is a structural ceiling that simply was not there in 2021.
So is there anything I can actually do?
Two practical things, and they both matter more than people expect.
- Lender selection. Different lenders apply different rate floors, different HEM models and different ways of treating existing debt, so your number can vary by tens of thousands across the panel for the same income. The order you place loans across lenders matters too... I cover that in the lender sequencing post. Choosing the right lender for your situation is the lever most within reach today.
- The rate cycle. The assessment rate moves with actual rates, because the 3% buffer sits on top of them. If rates ease, the rate you are tested at falls with them, and your borrowing capacity moves accordingly. I track the cash-rate position on the RBA cash rate page.
If you want to see your actual number rather than guess at it, the Borrowing Power Framework walks through the inputs lenders use. And if your numbers feel tight and you would like a second look across the panel, that is exactly the modelling I do.
Common questions
Why can I borrow less now than a few years ago even though I earn more?
Because the bank assesses your application at your interest rate plus a buffer, not at the rate you actually pay. With rates in the high 6s and APRA’s 3% buffer, the assessment rate is near 10%, against around 5% in 2021. Add a higher HEM living-expense benchmark and the new 2026 debt-to-income limit, and the same income services a smaller loan. It is the regulatory and rate environment, not your income.
What is the APRA serviceability buffer?
It is the margin lenders must add to your actual interest rate when they test whether you can afford a loan. APRA increased the minimum buffer from 2.5% to 3.0% in October 2021, and confirmed it would remain at 3.0% in its review on 28 May 2026. The buffer checks that you could still meet repayments if rates rose.
What assessment rate do banks use in 2026?
It depends on your actual rate plus the 3% buffer. If your rate is 6.5%, you are assessed at about 9.5%. If your rate is 7.0%, you are assessed at about 10%. Individual lenders also apply their own rate floors, so the exact figure varies by lender and is subject to lender criteria.
What is the debt-to-income (DTI) limit and how does it affect my borrowing?
From February 2026, APRA limited lenders to no more than 20% of their new mortgage lending going to borrowers with total debt of six times their income or more. The cap applies separately to owner-occupier and investor portfolios. If your borrowing pushes past six times your income, fewer lenders will have room under their cap, which can affect both your approval and your pricing.
Will my borrowing power go back up if interest rates fall?
Generally yes, because the assessment rate is your actual rate plus the 3% buffer. If actual rates fall, the rate you are tested at falls with them, which usually lifts borrowing capacity for the same income. It is not guaranteed and depends on lender policy, HEM and your individual circumstances, but the direction is real.
Do all lenders calculate borrowing power the same way?
No, and this is where it matters most. Lenders apply different rate floors, different HEM models, and different treatment of existing debts and rental income. For the same income, your borrowing capacity can vary by tens of thousands of dollars across the panel. Matching you to the lender that reads your situation most generously is part of what a broker does.
