Key Takeaways
- Borrowing power — the maximum a lender will let you borrow — has shrunk for almost everyone in 2026. Canstar analysis reported by Domain puts the cut at roughly 9% since the start of the year for an average full-time earner: about $47,400 less after the September rise took the cash rate to 4.60%.
- Lenders don’t assess you at the rate you’d actually pay. Under APRA’s serviceability guidance they test whether you could still afford the loan at around 3 percentage points higher — so every rate rise cuts capacity twice over.
- What you can borrow is not one number. Income types, living-expense benchmarks, credit card limits, HECS treatment and the new debt-to-income rules are all weighed differently from lender to lender — the spread between the lowest and highest answer for the same household is routinely six figures.
- You can move the number. Cancelling unused card limits, clearing small debts, documenting income properly and choosing the right lender for your profile are the fastest levers — most cost nothing.
- Falling property prices are the other side of the squeeze: you may be able to borrow less, but in many suburbs you also need less than you did a year ago.
- This is general information only, not credit or financial advice. All figures are reported estimates or clearly labelled illustrations, not quotes — your position will differ, so get advice before acting.
“How much can I borrow?” is the first question almost every borrower asks us — and in 2026 the honest answer is: less than last year, but probably more than your bank’s calculator just told you. Four cash rate rises this year, ending (so far) with September’s move to 4.60%, have steadily compressed borrowing power across Australia. Canstar’s analysis, reported by Domain at the end of September, estimates an average full-time earner on $108,650 has lost about $47,400 of borrowing capacity since the start of the year — roughly 9% — with the September rise alone trimming around $11,200.
That’s the squeeze. What gets far less attention is how differently each lender calculates the same household’s maximum — and how much of your borrowing power is sitting in things you can actually change this month. As brokers working with buyers in Torquay, Geelong, Melbourne and right across Australia, we spend a lot of time doing exactly that: finding the lender whose assessment suits your profile, and tidying the things that drag the number down. Here’s how it all works in 2026, and what you can do about it.
What Four Rate Rises Have Done to Borrowing Power
Every rate rise hits your borrowing power twice. Once through the rate itself — higher repayments on any given loan size — and once through the buffer, because lenders must test your repayments at an assessment rate roughly 3 percentage points above what you’d actually pay, under APRA’s long-standing serviceability guidance. When the cash rate climbs from 3.60% to 4.60% in a year, as it has in 2026, the rate your application is tested at climbs with it, and the maximum loan that passes the test falls with every move. We covered the September decision itself in our RBA rate rise explainer.
Canstar’s estimate, reported by Domain on 29 September 2026, of how much borrowing capacity an average full-time earner (income $108,650) has lost across 2026’s four rate rises — about 9% since the start of the year. If forecasts of a fifth rise in November prove right, Canstar puts the potential cut beyond $58,000. Forecasts differ between banks and change quickly, so treat any prediction as a scenario, not a promise.
There is a partial offset: prices. The same analysts note property values have been falling in most capitals this year, which means the house you’re chasing may also cost less than it did when your borrowing power was higher. For some buyers — particularly upgraders selling and buying in the same market — the two moves largely cancel out. For first home buyers with a fixed deposit, the arithmetic is more personal, which is why it’s worth getting your actual number assessed rather than mourning last year’s one.
How Lenders Actually Calculate How Much You Can Borrow
Behind every online calculator sits the same basic engine. The lender adds up your reliable income, subtracts your declared living expenses (checked against a benchmark — if you declare less than the benchmark for your income and household size, the benchmark usually wins), subtracts commitments to existing debts, then works out the biggest loan the remainder could service at the buffered assessment rate. Since 2026, that result also has to clear APRA’s new 6x debt-to-income cap at most lenders — total debt generally can’t exceed six times gross household income, no matter how well the servicing maths works.
The detail is where the money is. Each input is treated differently from lender to lender, and the differences compound:
| Input | What most lenders do with it | Where lenders differ |
|---|---|---|
| Base salary | Counted in full | Little difference — this one’s easy |
| Overtime, bonus, commission, casual income | Often discounted (e.g. only part counted) or averaged over 1–2 years | Hugely — the right lender for shift workers, nurses, police or sales roles can count far more of the same payslip |
| Self-employed income | Assessed from tax returns, often averaged | Number of years required, treatment of add-backs and one-off expenses vary widely |
| Living expenses | Higher of your declared spending or a benchmark for your income and household | How line-by-line they verify, and how private school fees, childcare and subscriptions are treated |
| Credit cards | Assessed on the LIMIT, not the balance — even if you pay it off monthly | The percentage of limit counted as a monthly commitment varies |
| HECS-HELP debt | Repayments counted as a commitment | Regulator guidance now allows more flexibility, especially for debts close to repayment — see our HECS and borrowing power guide |
| Car loans, personal loans, BNPL | Full repayment counted as a commitment | Treatment of novated leases and BNPL conduct differs |
This is why two banks can look at the same couple and land $150,000 apart, and why the number from any single lender’s calculator — including the one on our own site — is a starting point, not a verdict. Our borrowing power calculator is useful for testing scenarios; a broker assessment across a whole lender panel is how you find your real ceiling.
Nine Ways to Increase Your Borrowing Power in 2026
1. Cancel or cut credit card limits you don’t use. Lenders assess the limit, not the balance. As a rule of thumb brokers use, every dollar of card limit can cost several dollars of borrowing power: counting a $20,000 limit as a monthly commitment of a few hundred dollars, tested at a buffered assessment rate over 30 years, can shave an amount in the rough order of $85,000–$90,000 off a maximum loan (an illustrative calculation — the exact impact depends on the lender’s method). If you don’t use the limit, that’s free capacity.
2. Clear small debts before you apply. A car or personal loan repayment of $500 a month can reduce capacity by an amount in the rough order of $55,000–$60,000 on the same illustrative basis. If a debt has only months to run, paying it out (or refinancing it sensibly) before the application often returns far more in borrowing power than it costs in cash — our debt consolidation guide covers when that’s smart and when it isn’t.
3. Tidy your spending for three months before applying. Lenders read your statements. Trimming discretionary spending, pausing the subscriptions you forgot you had, and keeping gambling transactions off your accounts genuinely changes the expense figure used — and it signals exactly the conduct lenders want to see.
4. Make all of your income count. If overtime, penalties, bonuses, commission or a second job are a real part of your earnings, the lender you choose decides how much of it exists on paper. The same applies to self-employed borrowers, where add-backs and the choice between one and two years of returns can transform the assessable figure — see our self-employed home loan guide.
5. Check your HECS position. Recent rule changes mean HECS is treated more flexibly than it used to be, particularly where the debt is close to being repaid. For some buyers, paying out a small remaining balance lifts capacity meaningfully; for others it’s better left alone. Our HECS guide walks through the 2026 position.
6. Consider a longer loan term — with eyes open. A 30-year term produces a lower tested repayment than 25 years, so it supports a bigger loan. The cost is more interest over the life of the loan if you never get ahead; the fix is using the term for capacity, then paying it down faster than required.
7. Grow the deposit — or borrow it a smarter way. A bigger deposit doesn’t just shrink the loan you need; at lower loan-to-value ratios some lenders assess more generously and lenders mortgage insurance can disappear from the equation. Family help — a guarantor or gifted deposit — changes the maths again; the options are compared in our Bank of Mum and Dad guide.
8. Apply as a team where it genuinely fits. Two incomes assess better than one, and household structure changes the expense benchmark. Joint applications carry real legal obligations for both parties, so this is a decision to make with advice — not a hack.
9. Pick the lender to fit your profile — not the other way round. This is the quiet one that outweighs the rest. Every item above lands differently depending on the lender’s credit policy, which is why the spread between lenders for the same household is routinely six figures. Matching your profile to the right policy is most of what a broker does before a single form is filled in.
Client Example
Picture a couple in Lara — one salaried, one doing regular paid overtime — told by their own bank’s calculator that they were about $70,000 short of the home they wanted. Working through the list: they cancelled a $20,000 credit card limit left over from a renovation (freeing capacity in the rough order of $85,000–$90,000 on the illustrative basis above), paid out the last four months of a personal loan, and moved the application to a lender whose policy counted most of the overtime their own bank had discounted. No extra income, no bigger deposit — the same household, assessed properly, cleared the gap with room to spare. Every figure here is illustrative and names no lender, but the sequence — limits, small debts, income treatment, lender choice — is exactly how we run a real borrowing power review.
Borrowing Power Is a Moving Target — Time Your Run
Two dates matter for the rest of 2026. The quarterly inflation figures land in late October, and the RBA board meets again on 3 November. If rates rise again, borrowing power takes another step down; if the cycle has peaked, today’s assessment is roughly the floor. Nobody — including the banks, whose own forecasts currently disagree — knows which it will be, so the practical play is the same either way: get a current assessment and a pre-approval based on today’s rules, and refresh it if conditions move. Pre-approvals aren’t forever — most last around three months — but spring selling season is exactly when having one turns you from a browser into a buyer. And if the squeeze you’re feeling is on your existing loan rather than your next one, start with our guide to reducing your mortgage repayments.
Pro Tip
Don’t maximise borrowing power for its own sake. The buffer exists because rates move — as 2026 has demonstrated four times. The number worth knowing isn’t just the biggest loan a lender will approve; it’s the biggest loan that still lets you sleep if there’s one more rise. We model both in every assessment, and the gap between them is one of the most useful conversations you’ll have before you buy.
Frequently Asked Questions
How is borrowing power calculated?
Lenders take your reliable income, subtract living expenses (your declared figure or a benchmark, whichever is higher) and existing debt commitments, then calculate the largest loan the remainder could service at an assessment rate about 3 percentage points above the actual rate. Since 2026, most lenders also apply APRA’s cap of roughly six times gross household income on total debt. Each lender weighs the inputs differently, so the same household gets genuinely different answers from different lenders.
Do credit cards reduce borrowing power even if I pay them off every month?
Yes. Lenders assess your credit card limit, not your balance, because you could draw the full limit the day after settlement. A limit you never use still counts as a monthly commitment in the servicing calculation. Cancelling or reducing unused limits before you apply is one of the fastest, cheapest ways to lift what you can borrow.
Does HECS debt affect your borrowing power?
Yes — compulsory HECS-HELP repayments reduce the income available to service a loan, so they reduce borrowing power. But the treatment softened under regulator guidance announced in 2025, particularly for debts close to being repaid, and lenders apply it differently. Depending on your balance, paying HECS out early can be worthwhile or a waste of a deposit — it’s worth doing the maths both ways before deciding.
Will my borrowing power go back up if interest rates fall?
Broadly, yes — the assessment rate falls with the actual rate, so the same income services a bigger loan. That’s how roughly $47,000 of average capacity disappeared as rates rose through 2026, and the mechanism works in reverse. But nobody can tell you when cuts come, and property prices tend to respond to the same moves. Buying power is the combination of what you can borrow and what homes cost — which is why timing the market usually matters less than being assessment-ready when the right property appears.
Want to Know Your Real Number?
We’ll assess your borrowing power across our lender panel — income treatment, limits, HECS, the 6x cap and all — and show you which levers lift it and by how much. Based in Torquay, working with buyers across Geelong, Melbourne and Australia-wide by phone and video. No cost, no obligation.
Melanie McNaughton
Director & Senior Finance BrokerWith years of experience in mortgage broking and finance, Melanie helps first home buyers, refinancers, investors and business owners across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria make their money work harder. Contact our team on 03 9020 2699.