You speak to one bank and they tell you that you can borrow $550,000.
You speak to another lender using seemingly the same income, deposit and financial information, and they indicate you could potentially borrow $700,000.
How can there be such a big difference?
It's one of the most confusing parts of applying for property finance, but there's a relatively simple explanation:
Banks don't all assess borrowers in exactly the same way.
Each lender has its own credit policies, serviceability calculations, treatment of different income sources and approach to existing debts and financial commitments.
This means your borrowing capacity isn't necessarily one fixed number.
Understanding these differences can be particularly important for property investors, self-employed borrowers and anyone whose financial situation isn't completely straightforward.
Here's what can cause two lenders to arrive at very different numbers.
Your borrowing capacity, sometimes referred to as borrowing power, is an estimate of how much a lender may be prepared to lend you based on your financial circumstances and its lending criteria.
Lenders typically consider factors such as:
The lender then assesses whether you should be able to afford the proposed loan repayments while continuing to meet your other financial commitments.
This assessment is generally known as serviceability.
And this is where differences between lenders begin to matter.
There isn't one universal calculator used by every Australian lender.
Banks and other lenders establish their own credit policies within the broader regulatory framework in which they operate.
As a result, one lender may be comfortable with a particular borrower profile while another takes a more conservative approach.
This can influence:
Two applications containing the same financial information can therefore produce different outcomes.
Your salary might appear straightforward, but not all income is necessarily treated equally.
A borrower might receive:
$90,000 base salary + $20,000 overtime + $10,000 annual bonus
The borrower may consider their total income to be $120,000.
A lender may not necessarily use the full $120,000 when assessing the application.
Depending on its policies, it could apply different treatment to the overtime and bonus components.
This can also apply to:
If a substantial percentage of your earnings comes from variable or non-standard income, the lender's individual policy can have a meaningful impact on your borrowing capacity.
Variable income is a particularly good example of why lender choice matters.
One lender may accept a significant proportion of regular overtime if there is sufficient history demonstrating that the income is consistent.
Another lender may apply a larger reduction or require additional evidence.
The same can happen with bonuses and commissions.
A lender could ask for:
The important point is that earning the income doesn't automatically mean every lender will use all of it for serviceability purposes.
This becomes especially important for property investors.
Imagine you own an investment property generating $600 per week in rent.
That equals approximately:
$600 × 52 = $31,200 per year
However, lenders generally need to account for the fact that property ownership comes with expenses and potential vacancies.
The amount of rental income included in a serviceability calculation can therefore differ from the gross rent received.
Lenders may also have different policies around:
For an investor building a portfolio, small differences in how rental income is treated can become increasingly important as more properties are added.
Rental income is only one side of the investment-property calculation.
The existing mortgage also matters.
Suppose you own an investment property worth $650,000 with a $400,000 mortgage.
Different lenders can have different methods for assessing the repayments and financial commitment associated with that debt.
When someone owns several properties, these differences can compound.
This helps explain why an investor might be told by one bank that they have reached their borrowing limit, while another lender may produce a different serviceability outcome after assessing the same portfolio.
That doesn't mean one lender is ignoring the debt.
It means their assessment methodologies and lending policies may differ.
One area borrowers often overlook is credit cards.
Banks generally don't look only at what you currently owe.
The credit limit itself can be relevant.
For example, you might have a credit card with:
Limit: $15,000
Current balance: $500
Even though you only owe $500, the lender may assess the financial commitment associated with the available credit facility.
If you have several high-limit credit cards that you rarely use, they can potentially affect your home loan serviceability.
This is why reviewing unnecessary credit facilities before applying for finance can sometimes be worthwhile.
However, don't close accounts purely to increase borrowing capacity without first considering whether doing so is appropriate for your circumstances.
Australian borrowers with HECS/HELP debt may also find that their borrowing capacity differs depending on their overall circumstances and lender assessment.
Compulsory student-loan repayments can reduce disposable income available for mortgage repayments.
The effect can vary depending on factors such as:
For some borrowers the impact may be relatively modest, while for others it can materially change how much they can borrow.
Income receives a lot of attention when people calculate borrowing capacity, but expenses are equally important.
Lenders may assess spending across categories such as:
Your declared expenses may then be considered against the lender's own assessment methodology and applicable benchmarks.
A household with two children and significant childcare expenses will generally have a different serviceability position from a borrower earning the same income with substantially fewer commitments.
Dependants affect household expenses and therefore can influence borrowing capacity.
Two applicants might both earn $120,000 per year.
Borrower A is single with no dependants.
Borrower B has three dependent children.
Even if their salaries are identical, their assessed household commitments aren't necessarily the same.
This is why online borrowing calculators should generally be treated as estimates rather than guaranteed lending amounts.
The complete financial picture matters.
One of the biggest misconceptions about borrowing capacity is that banks simply check whether you can afford repayments at today's advertised interest rate.
Lenders generally assess whether borrowers could continue servicing their loans if interest rates were higher than the actual loan rate.
This is commonly referred to as a serviceability buffer.
The assessment rate used in the serviceability calculation can have a significant effect on borrowing power.
Even a relatively small difference in assessment methodology can change the maximum loan amount when applied across a 25- or 30-year mortgage.
Loan term can also influence borrowing capacity.
Consider a borrower applying for the same loan over:
20 years
versus
30 years
A shorter loan term generally requires higher scheduled repayments because the debt must be repaid faster.
The structure and remaining term of existing debts can also influence a lender's assessment.
This can become particularly relevant for older borrowers or people with existing loans that have relatively short remaining terms.
Self-employed borrowers can experience some of the biggest differences between lenders.
Unlike a PAYG employee receiving a consistent salary, self-employed income can fluctuate from year to year.
Lenders may need to assess information such as:
One lender's treatment of these figures may differ from another's.
For example, certain legitimate business expenses or accounting items may be treated differently when determining income available for serviceability.
This is one reason self-employed borrowers can benefit from understanding lender policy before submitting an application.
Australians working overseas or borrowers receiving foreign income may also experience substantial differences between lenders.
Banks can have specific requirements relating to:
One lender may have an appetite for a particular foreign-income scenario while another may not.
For borrowers earning overseas income, lender selection can therefore become particularly important.
For a relatively straightforward borrower buying their first property, lender calculations may sometimes produce reasonably similar results.
As a portfolio becomes more complex, however, differences in lender policy can become increasingly significant.
An investor might have:
Every additional component gives lenders more information to assess.
That's why borrowing capacity should ideally be reviewed as part of a broader property investment finance strategy, particularly before purchasing additional properties.
This point is extremely important.
If Bank A indicates you could borrow $600,000 and Bank B indicates $700,000, that doesn't automatically make Bank B the better lender.
Borrowing capacity is only one consideration.
Borrowers should also assess factors such as:
And most importantly, the amount a bank is prepared to lend isn't necessarily the amount you should borrow.
Your personal comfort level and financial goals matter too.
Consider an investor with:
Lender A might take a more conservative approach to the borrower's overtime and rental income.
Lender B may have a policy that allows it to recognise more of the borrower's established variable income while assessing the investment property differently.
The resulting borrowing capacities could therefore vary.
This doesn't mean either calculation is necessarily wrong.
They're applying different lending criteria to the same financial circumstances.
You may have noticed the same thing when using online calculators.
Enter your information into three borrowing-capacity calculators and you can receive three different answers.
That's because calculators rely on assumptions.
They may make different assumptions about:
Online calculators can be useful for getting a rough idea of borrowing power, but they aren't a substitute for an assessment of your complete financial circumstances.
There isn't a single trick that suddenly makes everyone eligible to borrow more.
However, depending on your circumstances, areas worth reviewing may include:
Reducing unnecessary consumer debt: Personal loans and other commitments can affect serviceability.
Reviewing unused credit card limits: Large available credit limits can influence borrowing calculations.
Building consistent income history: Particularly relevant for variable-income and self-employed borrowers.
Reviewing existing loans: The structure and cost of current debt may affect future borrowing capacity.
Maintaining accurate financial records: Clear documentation can make income assessment easier.
Comparing appropriate lenders: Different lender policies may suit different borrower profiles.
Any changes should make sense for your broader financial position rather than being made solely to maximise the amount a lender will offer.
For property investors in particular, finance shouldn't necessarily be viewed one property at a time.
The lender chosen for your first or second property can potentially influence your options when you want to purchase again later.
That's why it's useful to consider questions such as:
What is my borrowing capacity now?
How will this loan affect my borrowing capacity for the next property?
How will the lender assess my rental income?
Does the loan structure suit my longer-term plans?
What happens when I want to access equity or refinance?
The cheapest advertised rate today may not always provide the most appropriate structure for what you're trying to achieve over the longer term.
At DDP Finance, we understand that borrowers don't all fit neatly into the same lending criteria.
Different lenders assess income, expenses, existing debt, rental income and borrower circumstances differently, which is why understanding the available lending options can be so important.
Rather than looking only at one bank's borrowing calculator, our approach is to understand your broader financial position and property goals before exploring suitable finance options.
This can be particularly valuable for:
If you're trying to understand how much you may be able to borrow and which lending options may suit your circumstances, speak with DDP Finance about reviewing your finance position.
Different banks can use different lending policies, serviceability calculations and approaches to income, expenses, debts and rental income. This can result in different borrowing-capacity estimates for the same borrower.
No. Borrowing capacity is an estimate of how much you may be able to borrow. Pre-approval involves a lender assessing an application against its lending criteria and providing conditional approval, subject to its requirements.
A mortgage broker can't guarantee a higher borrowing capacity. However, a broker can compare available lenders and identify differences in lending policies that may be relevant to your financial circumstances.
Rental income can contribute to a lender's serviceability assessment, but lenders may not use the full gross rental amount. The treatment can vary between lenders and loan scenarios.
They can. Lenders may consider the credit limit and associated financial commitment rather than simply looking at the amount currently owing.
It can, depending on the lender, occupation, consistency of the overtime and supporting income history. Different lenders may assess overtime differently.
Yes. Lenders can have different policies for assessing business income, financial statements, tax returns and certain accounting adjustments, so borrowing capacity may vary.
Not necessarily. Maximum borrowing capacity is only one consideration. Interest rates, fees, loan features, flexibility, structure and your own ability to comfortably manage repayments should also be considered.
