How lenders assess home loan serviceability

Lenders assess serviceability by testing whether your verified income — usually “shaded” for overtime, bonuses, commission and rental income — can cover the proposed repayments after your living expenses and existing commitments. APRA-regulated banks and other authorised deposit-taking institutions must run that test at an interest rate at least 3 percentage points above the rate you would actually pay — a buffer APRA confirmed unchanged on 28 May 2026. APRA also expects them to assess living expenses at the greater of your declared figure or an income-scaled benchmark. Non-bank lenders sit outside APRA’s prudential framework but remain subject to responsible lending law. Each lender applies these rules through its own credit policy, so maximum loan amounts vary between lenders.

Key points:
- APRA-regulated banks must test repayments at **at least 3.0 percentage points above the loan’s actual ongoing rate**, ignoring discounted introductory rates — an enforceable requirement under Attachment C of Prudential Standard APS 220, set at 3.0 percentage points since October 2021 and [confirmed unchanged by APRA on 28 May 2026](https://www.apra.gov.au/news-and-publications/apra-maintains-current-macroprudential-policy-settings-highly-uncertain).
- APRA expects ADIs to assess living expenses at the **greater** of your declared figure or an income-scaled benchmark such as the HEM — so understating your expenses generally does not increase borrowing power.
- APRA regards discounts of at least 20 per cent on most non-salary income, and a minimum 20 per cent haircut on expected rental income, as prudent practice — the exact shading percentages are set by each lender’s own credit policy.
- Existing debts are buffered too, and credit cards are typically assessed on the full committed limit rather than the balance — APRA’s practice-guide example is 3 per cent per month of the total limit.
- From February 2026, APRA also caps each bank’s new mortgage lending at debt-to-income ratios of 6 or more to 20 per cent of new lending per quarter — a portfolio-level limit on lenders, not a ban on any individual borrower.
- Under the National Consumer Credit Protection Act 2009, lenders and brokers must make reasonable inquiries, verify your financial situation and assess the loan as “not unsuitable” — and you can request a written copy of that assessment.
- Floors, shading, benchmarks and debt treatment all differ between lenders, so the same applicant can be offered materially different maximum amounts — this guide is general information, not an assessment of your position.