Every lender runs a version of the same calculation. Start with your gross annual income - salary, rental income, and other accepted income sources. From that figure the lender deducts your declared living expenses or their benchmark (whichever is higher). They then deduct the minimum repayments on all existing debts: credit cards, personal loans, car loans, HECS/HELP debt, and any existing mortgages.
What remains is the income available to service a new loan. The lender then calculates what that new loan would cost at the assessment rate - typically the actual rate plus a buffer - and checks whether you can cover it. If you can, you meet serviceability. If not, the loan amount needs to come down until the numbers work.
The reason different lenders give different answers is that each element of this formula - the income shading, the benchmark expenses, the buffer rate - varies by lender. A broker who knows which lenders use the most favourable assumptions for your profile can sometimes unlock a meaningfully higher borrowing capacity.
Lenders do not simply take your word for what you spend. They compare what you declare against the Household Expenditure Measure (HEM), a statistical benchmark based on ABS data. The HEM varies by location, household size and income level. Lenders use whichever is higher - your actual declared expenses or the HEM figure.
This matters because even if you are genuinely frugal, the HEM floor can limit your borrowing capacity. HEM benchmarks have risen significantly since APRA's 2019 guidance, and some lenders apply much more conservative figures than others. If you have unusually low living costs - for example, you live with family or have no dependents - it is worth making sure your broker finds a lender whose benchmark reflects your actual situation as closely as possible.
APRA requires authorised deposit-taking institutions to assess new loans at a minimum of 3 percentage points above the loan's actual rate. This is called the serviceability buffer. If you are borrowing at 6.2%, you will be tested at 9.2% or higher. The purpose is to ensure loans can still be serviced if interest rates rise substantially after settlement.
The buffer rate is one of the most significant constraints on borrowing capacity in the current rate environment. It is also the reason why your borrowing capacity figure may look much lower than you expect when compared to simple income multiplier rules of thumb. Some non-bank lenders operating outside APRA regulation apply lower buffers, which can increase capacity - but this comes with trade-offs in rate and flexibility that a broker should walk you through.
Lenders have genuine discretion in how they apply the serviceability framework. One lender might shade overtime income to 80% while another accepts 100% with two years of history. One lender's HEM for a couple with two children in Adelaide might be $4,800 per month, another's might be $6,200. Credit card limits are typically assessed at 3% of the limit regardless of the balance outstanding - but the percentage can vary.
The result is that two lenders assessing the same borrower with identical documents can arrive at borrowing capacity figures that differ by $100,000 or more. This is exactly why working with a broker matters - we run your numbers through multiple lenders before recommending one, rather than sending you to a single bank that may not be the best fit for your income structure.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. We run your numbers across 60+ lenders and tell you exactly where you stand.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.