How Your Income Affects Borrowing Power

Two couples earn the same money. One can borrow $200,000 more than the other.

That surprises people, but income is only the starting point of a borrowing power calculation. What matters is what's left after a lender finishes making assumptions about you.

Income is where it starts, not where it ends

A lender takes your income, then subtracts your living expenses, your existing commitments, and a buffer.

What survives that process is what they'll lend against. So two people on identical salaries can land in very different places depending on everything else in their file.

Not all income counts the same

This is the part that catches people out.

Base salary from ongoing employment is treated most favourably.

Overtime, bonuses and commission are usually shaded, meaning a lender counts a portion rather than all of it, and often wants a couple of years of history to count it at all.

Casual income typically needs a track record in the same role.

Self employed income is generally assessed on your tax returns rather than what your business turned over, and lenders normally want two years.

Rental income from an existing property is shaded too, because vacancies happen.

If a meaningful part of your income is variable, the number in your head and the number a lender uses can be quite far apart.

Debts hurt more than you'd expect

Credit cards are assessed on the limit, not the balance. A card you never use still reduces what you can borrow, because you could draw the whole limit tomorrow.

Buy now pay later accounts show up too.

Personal loans and car loans are counted at their full repayment, and a car loan with a year left still counts.

HECS or HELP counts while there's a balance, as a repayment against your income.

This is the single most common thing standing between someone and a bigger approval, and it's frequently fixable in a fortnight.

The buffer

Lenders don't assess you at the rate you'll pay. They assess you at a higher rate, to check you could still manage if rates rose.

That buffer is why your borrowing power is always lower than a simple repayment calculation suggests, and why it moves when the wider rate environment moves even if your income hasn't changed.

Living expenses

Lenders apply a benchmark for household living costs, and compare it to what you declare. Declare something implausibly low and it gets replaced with the benchmark.

Your actual spending in the three to six months before you apply matters. Statements get read.

Why lenders differ so much

Each lender sets its own policy on how it shades variable income, how it treats HECS, what benchmark it applies, and how it assesses casual or self employed work.

Those policy differences are exactly why the same file gets materially different answers from different lenders. It isn't randomness. It's policy.

Finding the lender whose policy suits your income type is a large part of what a broker is actually for.

What to do about it

Before you apply, reduce or close credit card limits you don't need, clear small consumer debts if you can, and give your spending three clean months.

Then get a proper assessment rather than an online estimate, because the online estimate can't see your income type.

Start with the borrowing power calculator on this site. It's free and it shows its working.

Let's get you into a home.