Simple hacks to pass serviceability when borrowing

What lenders test when you apply for a home loan

A serviceability assessment determines whether you can afford to repay the loan at a rate higher than the one you'll actually pay. Lenders test your repayment capacity by adding a buffer of at least 3.0 percentage points to the loan product rate, then checking whether your income can cover that higher repayment plus all your existing commitments.

Consider a buyer in Canberra applying for a $600,000 loan on a variable rate currently sitting at 6.20 per cent. The lender assesses serviceability at 9.20 per cent minimum. That means repayments of roughly $4,850 per month are used in the assessment, even though the actual repayment at 6.20 per cent would be closer to $3,660. The lender then subtracts your rent, any existing debt repayments, and an allowance for living expenses based on the Household Expenditure Measure. If your net income after all those deductions can cover the buffered repayment, you pass. If not, the application is declined or the loan amount is reduced.

This buffer applies to all new borrowers across every authorised deposit-taking institution in Australia. It exists to protect both you and the lender from rate rises and income changes during the life of the loan.

How debt-to-income limits changed serviceability in early 2026

From 1 February 2026, banks and credit unions became subject to a lending limit that restricts how much of their new lending can go to borrowers with a total debt-to-income ratio of six times or greater. Each lender can lend up to 20 per cent of new owner-occupier loans and 20 per cent of new investor loans to borrowers above that threshold.

If your household income is $120,000 and you're applying for a $750,000 home loan, your DTI ratio is 6.25. You haven't been locked out, but you're now in a segment that lenders monitor closely. Some will have already used their allocation for the quarter. Others may still have capacity but will apply tighter underwriting standards to borrowers above the threshold. In our experience, applicants with a DTI above six now face longer turnaround times and more requests for supporting documentation, even when their income is stable and their expenses are low.

This limit applies separately to owner-occupier and investor lending at each institution, which means if one lender has exhausted its quota for the quarter, another may still have room. Non-bank lenders are not subject to the limit, though their credit policies may be tighter in other areas.

Income shading and how lenders discount what you earn

Not all income is treated equally in a serviceability assessment. Lenders apply a discount, or shading policy, to income types that carry uncertainty or variability. Rental income is typically shaded by 20 per cent to allow for vacancy and maintenance costs. Overtime and bonuses are often shaded by as much as 50 per cent if they haven't been consistent over at least 12 months. Self-employed income is assessed after deductions, and lenders usually require two full years of financials before they'll include it at full value.

Consider a buyer in Canberra earning $95,000 in base salary plus $15,000 in overtime and receiving $24,000 in annual rent from a property they already own. The lender applies the full $95,000 base, shades the overtime to $7,500, and shades the rental income to $19,200 after the 20 per cent discount. The assessed income for serviceability purposes is $121,700, not the $134,000 that appears on paper. That reduction flows directly through to the maximum loan amount the buyer can support.

If you're self-employed or receive variable income, positioning your application to maximise what lenders can use often comes down to timing and documentation. Lodging after a strong financial year, with all tax returns complete, gives you the highest assessed income to work with.

Living expense benchmarks and the Household Expenditure Measure

Lenders use the Household Expenditure Measure, or HEM, to estimate your minimum cost of living based on household size, income level, and location. HEM is a statistical benchmark drawn from data collected by the Australian Bureau of Statistics and is updated periodically. If your declared expenses fall below HEM, the lender uses the HEM figure instead.

For a single person in the ACT with an income of $110,000, HEM might sit at around $2,400 per month. For a couple with one dependent child and a combined income of $160,000, the figure could be closer to $3,800. These amounts represent essentials such as groceries, utilities, transport, insurance, and other unavoidable costs. They do not include rent, mortgage repayments, or other credit commitments, which are assessed separately.

If you declare monthly expenses of $1,800 but HEM for your household type is $2,400, the lender uses $2,400 in the assessment. Understating your expenses on the application form does not improve your serviceability outcome.

Reducing existing commitments before you apply

The single most direct way to improve your serviceability is to reduce or eliminate existing debt before lodging your home loan application. Lenders assess credit card limits at their full available balance, not the amount you actually owe. A card with a $15,000 limit is treated as though you're carrying a $15,000 balance, which translates to a monthly repayment obligation of roughly $450 in the serviceability calculation.

If you hold multiple cards and rarely use them, close the accounts or reduce the limits before applying. The same principle applies to buy-now-pay-later accounts, personal loans, and car finance. Each commitment reduces the amount you can borrow. Paying down or refinancing a personal loan six months before applying for a mortgage can increase your borrowing capacity by tens of thousands of dollars, depending on the size of the repayment.

In scenarios where applicants have been declined or offered a lower amount than expected, the issue is usually not income but existing debt. A buyer earning $130,000 with $40,000 in car finance and two credit cards totalling $25,000 in limits will often have lower serviceability than a buyer earning $105,000 with no debt at all.

Structuring a split or offset loan to support serviceability

Loan structure affects serviceability indirectly by changing the repayment amount used in the assessment. A fully variable loan with a linked offset account offers flexibility and allows you to reduce interest over time without affecting the serviceability calculation upfront. The lender assesses the loan at the buffered rate on the full loan amount regardless of your offset balance.

A split loan, where part of the loan is fixed and part is variable, is assessed using the buffer on each portion separately. If the fixed portion is on a lower rate, that section may produce a marginally lower buffered repayment, though the difference is often minimal given the size of the buffer itself. More relevant is the fact that splitting allows borrowers to lock in part of their repayment while retaining access to offset and redraw on the variable portion.

For buyers applying under the Australian Government 5% Deposit Scheme, some participating lenders offer split structures where one portion is fixed at a capped rate and the other remains variable. These structures must still pass the standard serviceability assessment at the buffered rate, but they allow borrowers to stabilise part of their repayment profile once the loan settles. The scheme itself does not alter how serviceability is calculated.

Applying with a co-borrower or adjusting ownership structure

Adding a co-borrower increases the household income available to service the loan, which directly increases borrowing capacity. Both applicants' incomes are combined, and both sets of liabilities are included. If one applicant has significant debt or irregular income, the net effect on serviceability may be smaller than expected.

For buyers considering rentvesting or purchasing an investment property, structuring the loan in joint names when both parties have stable income allows the application to support a higher loan amount than either applicant could achieve individually. The trade-off is that both parties are jointly liable for the full debt and both names appear on the title.

In some cases, removing a co-borrower with high liabilities or low income can improve the outcome. A buyer earning $100,000 with minimal debt may qualify for a larger loan on their own than they would jointly with a partner earning $60,000 but carrying $30,000 in personal debt. Modelling both scenarios before lodging helps identify which structure produces the higher approval amount.

Timing your application around lender policy and rate cycles

Lender serviceability policies are not identical. Some institutions apply higher living expense benchmarks, others shade rental income more conservatively, and some allow greater discretion for applicants with strong savings history or low living costs. Moving your application from one lender to another can change the approved amount by $50,000 or more, even when your financial position hasn't changed.

Rate movements also affect serviceability indirectly. When the loan product rate rises, the buffered rate used in the assessment rises with it, which reduces the amount you can borrow. Buyers who obtained pre-approval at one rate may find their borrowing capacity has reduced by the time they're ready to proceed if rates have shifted in the interim. Pre-approval typically remains valid for three to six months, depending on the lender, but the amount is recalculated at the time of formal application if rates or your financial position have changed.

For buyers in Canberra planning to apply under the Home Buyer Concession, which now provides full stamp duty exemption regardless of property value or income from 1 July 2026, timing the loan application to align with contract exchange helps avoid the risk of policy changes or lender recalculations during settlement.

Using non-bank lenders when serviceability is tight

Non-bank lenders are not subject to the debt-to-income limit that applies to banks and credit unions, which makes them a useful option when your DTI ratio sits above six or when your income structure doesn't fit within a major lender's policy. Non-banks still apply a serviceability buffer and assess your ability to repay, but their credit policies are often more flexible around income shading, living expenses, and previous credit events.

Some non-bank lenders allow higher shading on rental income, accept shorter periods of self-employment, or apply lower living expense benchmarks for borrowers who can demonstrate genuine low-cost living arrangements. The trade-off is that rates are typically higher than those offered by major banks, and loan features such as offset accounts or free redraw may not be available.

For buyers who have been declined by a bank due to serviceability, or who have been offered an amount that falls short of what they need, a non-bank lender may approve the full amount at a rate that's 0.30 to 0.80 percentage points higher. In some cases, the strategy is to settle with the non-bank, establish a repayment history, then refinance to a major lender within 12 to 24 months once your financial position has strengthened or your debt-to-income ratio has improved.

Call one of our team or book an appointment at a time that works for you to discuss your serviceability position and work through which structure and lender will support the amount you're looking to borrow.

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