By Chaice Paterson, CEO & Founder, Low Deposit Homes | Updated June 2026
The honest answer in 2026: a typical first home buyer in Australia can borrow approximately 4.5 to 5.5 times their annual household income — though the actual number depends on dependants, debts, credit history, and which lender you apply with. Every bank has its own borrowing capacity calculator and its own policies, which is why the same buyer can receive materially different loan amounts from different lenders. A couple earning $170,000 with no children and no major debts can typically borrow in the $900K–$1M+ range. Adding two dependent children meaningfully reduces that. A car loan reduces it further. This guide breaks down how borrowing capacity is calculated, the levers you can pull to increase it, and the typical Low Deposit Homes client profile in 2026.
What formula do banks actually use to calculate borrowing capacity?
The simplified formula:
(Net income – committed expenses – HEM/declared living expenses – new mortgage repayment at buffer rate) > 0
Banks need this equation to balance with a positive number — meaning you have surplus after all obligations.
Each component:
- Net income: salary after tax, plus other verified income sources (rental, dividends, etc.)
- Committed expenses: existing debt repayments, ongoing financial obligations
- HEM (Household Expenditure Measure): the bank’s benchmark of minimum living costs for your household composition
- New mortgage repayment at buffer rate: the proposed loan repayment calculated at 3% above the actual rate (APRA requirement)
Important: every bank has its own internal calculator and policy framework that applies this formula. They use the same APRA principles but interpret the inputs differently — how they treat overtime income, how they assess BNPL accounts, how they shade child support, what they accept as living expenses, which credit cards they include. The same buyer can be quoted dramatically different borrowing capacity by different lenders. This is why the right lender match matters as much as the buyer’s underlying financials.
The buffer rate is the critical lever. In 2026, with mortgage rates around 6%, banks test serviceability at approximately 9% — meaning you need to demonstrate you could afford repayments at 9% even if you’re actually paying 6%.
How does the serviceability buffer affect my borrowing capacity?
The APRA-mandated 3% buffer materially reduces borrowing capacity compared to the actual rate environment. A $1,000,000 loan at 6% has monthly repayments of approximately $6,000. The same loan tested at 9% would have repayments of approximately $8,050 — meaning you need an additional $2,050/month of surplus to qualify.
One important exception: for 5% Deposit Scheme loans, lenders typically treat the loan as 80% LVR equivalent for pricing purposes (because the government guarantee reduces lender risk). This often results in a slightly lower buffer rate applied — effectively expanding borrowing capacity by 3-7% compared to identical-income non-scheme buyers.
How do dependent children reduce borrowing capacity?
Each dependent child adds approximately $400-$500 per month to the bank’s HEM benchmark, depending on the child’s age. For a couple with two children:
- Without children: HEM might be $4,500/month
- With two children: HEM might be $5,500/month
- Difference: $1,000/month in committed expenditure
- Borrowing capacity impact: approximately $130,000-$160,000 reduction
Banks rarely accept lower-than-HEM expense declarations — they assume your family will need at least the benchmark amount.
What about car loans, credit cards, and BNPL?
These reduce capacity disproportionately:
Car loans. A $500/month car loan repayment reduces borrowing capacity by approximately $80,000-$100,000. Paying off a car loan before applying for a home loan is often the single biggest capacity improvement available.
Credit card limits. Banks assess capacity based on your credit card LIMITS, not your actual balance. A $10,000 credit card limit (even with zero balance) is treated as approximately $300/month in committed expenditure — reducing borrowing capacity by approximately $40,000. Cancel unused credit cards before applying.
Buy Now Pay Later. Afterpay, Zip, etc. are treated similarly to credit cards. Established BNPL accounts with high limits reduce borrowing capacity even if you don’t actively use them.
HECS-HELP. As covered in our dedicated article, HECS reduces capacity by approximately $10,000-$15,000 per $10,000 of debt depending on income.
How can I increase my borrowing power before applying?
Six high-impact levers:
- Pay off small debts. A $5,000 personal loan with $200/month repayments unlocks $30,000+ in additional borrowing capacity.
- Cancel unused credit cards. Reducing $20,000 in unused credit card limits unlocks $60,000-$80,000 in capacity.
- Reduce car loan or pay out. Single biggest capacity move for most buyers with vehicle finance.
- Increase verified income. Bonuses included as income require typically 2 years of history. Side income (consultancy, ABN work) requires similar history.
- Add a co-applicant. Adding a partner with stable income can dramatically expand capacity, even if their savings contribution is small.
- Choose the right lender. Different lenders have materially different capacity calculations for the same buyer. A broker can identify the lender that maximises your specific situation.
What’s the typical borrowing capacity range for first home buyers in 2026?
Based on Low Deposit Homes client patterns:
| Household income | No dependants | 2 dependants |
|---|---|---|
| $100,000 | $650,000-$720,000 | $530,000-$590,000 |
| $120,000 | $780,000-$870,000 | $640,000-$720,000 |
| $145,000 | $940,000-$1,000,000 | $780,000-$870,000 |
| $170,000 | $1,000,000+ | $880,000-$1,000,000 |
These ranges assume good credit, minimal debts, and a 5% Deposit Scheme structure. Help to Buy applicants can effectively access higher property prices on the same income because the government’s 40% equity contribution drops the loan-to-value ratio dramatically.
“The biggest mistake I see is people assuming what they can borrow based on rough rules of thumb from friends. Two couples with identical incomes can have $200,000 different borrowing capacity depending on debts, dependants, and lender choice. Run your specific numbers with a broker before setting a property budget.” — Chaice Paterson, founder of Low Deposit Homes
What’s the typical LDH client profile?
After 1000+ families, the patterns are clear:
Average couple: combined income $170,000, savings $45,000–$55,000, no dependent children, modest debts, targeting $850K–$1M new build under the 5% Deposit Scheme.
Single buyer (no children): income $110,000–$120,000, savings $35,000, targeting $720K–$820K new build.
Single parent (single income): income $150,000, savings $30,000, targeting $700K–$760K new build under the Family Home Guarantee. At lower single-parent incomes ($85K–$110K), Help to Buy (shared equity) becomes the practical path because the reduced loan size makes higher-priced metro stock serviceable.
Help to Buy couple: combined income $130,000–$150,000 (within $160K cap), savings $20,000–$25,000, targeting $850K new build with the government contributing up to 40% — meaning their effective loan size sits around $500K–$520K, well within their serviceability.
These aren’t theoretical profiles — they’re statistical averages from the LDH client base.
Frequently Asked Questions
Q: Can I get a higher loan if I take in a flatmate to share repayments? One bank in the Australian market will count income from a flatmate / boarder toward serviceability — most won’t. The mainstream position is that flatmate rental income isn’t reliable, contracted income and won’t be included. The exception is narrow and specific; your broker can identify whether your situation might match it. For most first home buyers, flatmate income shouldn’t be relied on as a borrowing capacity lever.
Q: Will applying with multiple lenders reduce my borrowing capacity? Not the borrowing capacity itself — but each application creates a credit enquiry, and multiple enquiries in a short period can lower your credit score. A lower score can in turn restrict your access to mainstream lenders (or push you toward higher rates), which limits your ability to borrow on favourable terms. Practically: apply with one lender at a time, ideally through a broker who pre-narrows the field to the lender most suited to your situation before any application hits your file.
Q: Does the 5% Deposit Scheme increase my borrowing capacity? Indirectly yes. Because the 5% Scheme treats your loan as 80% LVR equivalent for pricing, lenders may apply a slightly lower buffer rate. This can expand borrowing capacity by 3-7% compared to identical-income non-scheme buyers.
Q: What’s the maximum I can borrow under a first home buyer scheme? The maximum is determined by the property cap (e.g., $1M Brisbane/GC/SC/Beaudesert for 5% Deposit Scheme), not by an absolute loan amount. Within the property cap, your borrowing is constrained by your income and serviceability.
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Low Deposit Homes operates under Winning Homes Australia Pty Ltd (ACN 633 321 758). All calculations are indicative. Individual circumstances may vary. This is not financial advice.