Borrowing capacity for an investment property is determined by a lender’s serviceability assessment — a calculation that tests whether the borrower’s income is sufficient to cover the proposed loan repayments at an assessed interest rate, after all other financial commitments.
Key inputs into a borrowing capacity calculation:
Income. Lenders include base salary, bonuses (usually at 80–100% depending on the lender and consistency), rental income from existing and proposed investment properties (typically at 70–80% of gross rent to allow for vacancy and expenses), and self-employment income assessed from 2-year tax returns.
Liabilities. Existing mortgage repayments (assessed at the higher of the actual rate or a floor rate), credit card limits (typically at 3% of the limit per month regardless of the actual balance), HECS debt repayments, and other personal loan commitments.
Assessment rate. Lenders assess serviceability at a buffer rate above the actual loan rate — typically 3% above the offered rate (APRA minimum). This is designed to ensure borrowers can still service the loan if rates rise.
Result. The maximum loan amount is the point at which the assessed repayments equal the borrower’s assessed net surplus income.
Variation between lenders. Serviceability policies differ significantly across the 70+ lenders in the Australian market. Different lenders treat income types, rental income shading, credit card limits, and HECS in different ways. Working with a broker who can compare serviceability across multiple lenders often unlocks meaningfully higher borrowing capacity than a single bank can offer.
