Your borrowing power — the maximum amount a lender will approve you to borrow — is calculated using your income, existing debts, living expenses, and the lender's assessment rate. In 2026, with the RBA cash rate at 4.10% and lenders assessing serviceability at a 3% buffer above the loan rate, understanding your borrowing capacity is essential before applying for any loan. Here is how to calculate and improve your borrowing power in 2026.

How Lenders Calculate Your Borrowing Power

Australian lenders use a Debt-to-Income (DTI) ratio and a Household Expenditure Measure (HEM) to assess your borrowing capacity. APRA's lending guidelines require lenders to assess your ability to repay at an interest rate at least 3% above the current loan rate. In 2026, this means most lenders assess serviceability at approximately 9-10% — even if your actual rate will be 6-7%.

  • Gross income: Salary, rental income, investment income (lenders typically apply a 20-30% haircut to non-salary income)
  • Existing debts: Credit cards (assessed at 3% of the limit, not the balance), personal loans, HECS-HELP, car loans
  • Living expenses: Either your declared expenses or the HEM benchmark — whichever is higher
  • Dependants: Each dependent child reduces your estimated surplus income

How HECS-HELP Debt Affects Borrowing Power in 2026

HECS-HELP debt reduces your net take-home pay through mandatory repayment deductions once your income exceeds the repayment threshold ($54,435 in 2025-26). Lenders treat this reduced net income as lower serviceability capacity — a $50,000 HECS debt can reduce your borrowing power by $20,000-$40,000 depending on the lender. Repaying your HECS voluntarily before applying for a mortgage can materially improve your borrowing capacity.

How to Improve Your Borrowing Power in 2026

  • Cancel unused credit cards: Lenders assess the full credit card limit, not just your current balance — cancelling a $10,000 card can add $50,000+ to your borrowing capacity
  • Pay down personal loans and car loans: Reduces your ongoing debt commitments in the serviceability calculation
  • Increase your income: A pay rise, promotion, or side business income (with 2 years of ATO-assessed returns) all increase capacity
  • Reduce your living expenses: Lenders may use your declared expenses if higher than HEM — documenting lower actual costs helps
  • Repay HECS voluntarily: Eliminates the repayment deduction from your net income
  • Apply with a co-borrower: Adding a spouse or partner with income materially increases the joint borrowing capacity

2026 Borrowing Power Estimate: Key Multiples

As a rough guide in 2026, most lenders will approve a loan of approximately 5-7x gross income for a borrower with minimal other debts and average living expenses. This varies significantly by lender, property type, and your specific financial position. Use an online calculator as a starting point, then speak with a mortgage broker or your bank to get a formal pre-approval.

Frequently Asked Questions

How much can I borrow on a $100,000 salary in 2026?

With a $100,000 gross salary, no other debts, and average living expenses, most Australian lenders would approve a loan of approximately $500,000-$650,000 in 2026. This estimate changes significantly with HECS debt, credit card limits, other loan commitments, or dependants.

Does a credit card I never use affect my borrowing power?

Yes significantly. Lenders assess the full credit limit — not the outstanding balance — as a potential monthly liability of 3% of the limit. A $15,000 credit card limit that you never use is treated as a $450 monthly debt commitment. Cancelling credit cards you don't need before applying for a home loan is one of the fastest ways to improve borrowing power.

Does paying off my HECS debt improve my borrowing power?

Yes. Voluntary HECS repayments increase your net take-home pay (by eliminating the compulsory repayment deduction), which increases your assessed serviceability with most lenders. The benefit depends on your income and the size of your debt, but it is generally worth modelling before a large loan application.

Planning a home loan application or investment property purchase? Contact AWTS to review your financial position and tax strategy before you apply.