How Much Can I Borrow in 2026? Serviceability, HEM, HECS and the Real Numbers

"How much can I borrow?" is the first question most home buyers ask and the most commonly mis-answered one. The number on a generic online calculator is rarely the number a lender will actually approve, and the gap is not random. It is created by four specific rules: the APRA serviceability buffer, how lenders apply the Household Expenditure Measure (HEM), how HECS/HELP is treated, and how existing credit card and BNPL limits eat into capacity even when balances are zero. This guide is the May 2026 update on each.

The APRA 3 per cent serviceability buffer

Since November 2021, APRA has required Authorised Deposit-taking Institutions (banks, mutuals, and most credit unions) to assess a home loan applicant's ability to repay the loan at an interest rate at least 3 percentage points above the actual product rate. The buffer was raised from 2.5 per cent in October 2021 and has remained at 3 per cent since. What that means in practice in May 2026: if the variable rate on the loan you are applying for is 6.55 per cent, the lender must assess your servicing ability at 9.55 per cent. On a $600,000 25-year loan, the actual minimum monthly repayment is about $4,084. The assessed repayment, at 9.55 per cent, is about $5,290. The lender is checking that you can afford the higher number, not the lower one. That is the single biggest reason that a borrowing-capacity calculation feels conservative. There are two carve-outs worth knowing. First, non-bank lenders (those not regulated by APRA) are not required to apply the 3 per cent buffer. Some non-banks use a buffer of 1 to 2 per cent, which translates to materially higher borrowing capacity for the same income. The trade-off is typically a higher product rate. Second, refinances between APRA-regulated lenders can in some circumstances be assessed under "exceptions to serviceability" rules where the new repayment is lower than the existing one and the borrower has a clean repayment history. The criteria are tight and bank-specific.

HEM: how lenders estimate your living expenses

The Household Expenditure Measure (HEM) is an estimate of typical household living expenses, produced quarterly by the Melbourne Institute. Lenders use HEM as a floor for assumed living expenses in a serviceability assessment: if your declared monthly expenses are below the HEM figure for your household composition and income, the lender substitutes HEM. If your declared expenses are above HEM, the lender uses your declared figure. The HEM figures vary by household composition (single, couple, dependents) and by income band. As of May 2026, indicative HEM figures used by major banks are roughly:

• Single, no dependents, $80,000 income: about $2,750 a month
• Couple, no dependents, $160,000 combined: about $3,950 a month
• Couple, two dependents, $160,000 combined: about $5,200 a month
• Couple, two dependents, $250,000 combined: about $5,850 a month

The implication for borrowing capacity: if your actual monthly spending is below HEM, the lender is effectively assuming you spend more than you do, which reduces the surplus available for loan repayments. The fix is to keep accurate expense records and to declare your actual expenses rather than agreeing to a generic HEM figure. The lender will still apply HEM as a floor if your declared figure looks unrealistic, but a credible, well-documented expense figure below HEM can lift borrowing capacity by 5 to 10 per cent for a borrower whose lifestyle genuinely supports it. The reverse is also true. Declared expenses above HEM are usually accepted at face value and reduce capacity directly. If you have been spending heavily in the three months pre-application (UberEats, travel, lifestyle), expect that to show in your bank statements and to be treated as ongoing.

HECS/HELP: deeper than it looks

HECS/HELP debts are treated as a monthly expense in most lender serviceability calculations, even though the deduction from your pay is via the tax system rather than a regular repayment. The compulsory HECS repayment rate ranges from 1 per cent of taxable income (at the lowest threshold) to 10 per cent (at the highest, for income above about $159,000 in 2025-26). For a borrower on $100,000 gross income, the HECS repayment is about 5.5 per cent of income, or $5,500 a year, $458 a month. Most lenders assess HECS at the actual repayment rate. The capacity impact is significant: a $458-a-month HECS commitment reduces borrowing capacity by roughly $70,000 to $80,000 on a typical lender calculator. For a borrower on $130,000, where HECS hits 7 per cent of income, the reduction is closer to $110,000. This is the area where the gap between borrower expectation and lender reality is widest. Borrowers often discount HECS as "automatic" and "not a real commitment". The lender treats it as a fixed claim on income for as long as the debt exists. The only way to remove the constraint is to pay the debt out before applying, which raises a separate question: is doing so a good idea? For most borrowers, the answer is no. Voluntary HECS repayments do not earn a return; they reduce a debt that is indexed to CPI (3.2 per cent for 2025) at a rate that may be lower than a home loan interest rate. Paying out HECS to lift borrowing capacity makes sense only when the increased borrowing capacity unlocks a specific property purchase that would otherwise be out of reach.

Credit card and BNPL limits: zero balance, real cost

This is the most-missed lever. Lenders treat unused credit card limits as if they were drawn down. A $20,000 credit card with a zero balance is treated as a $20,000 debt with a monthly minimum repayment (typically 3 per cent of the limit, so $600 a month). That assumed $600 a month reduces borrowing capacity by roughly $80,000 to $90,000. Most borrowers have one or two credit cards, often with limits that have crept up over the years. The fastest, lowest-effort capacity lift is to phone the card issuer and ask for the limit to be reduced or the card to be cancelled. Reductions are usually approved within 24 hours. A borrower with $40,000 of unused credit card limits can lift borrowing capacity by $150,000+ by cutting them in half before applying. BNPL accounts (Afterpay, Zip, Klarna) are also captured. Most major lenders look at the highest BNPL balance in the past three months and treat it as a fixed monthly outflow. Active BNPL use, even if balances are always paid on time, can reduce borrowing capacity by $20,000 to $50,000.

The four levers, ranked by impact-per-effort

The practical question is not "what is my borrowing capacity" but "what are the highest-leverage things I can do in the next three months to lift it?" Ranked by impact-to-effort:

1. Reduce or cancel unused credit card limits. 24 hours of effort, $30,000 to $150,000 of capacity uplift.
2. Close BNPL accounts you are not using. One hour of effort, $20,000 to $50,000 of capacity uplift.
3. Document your actual living expenses. Three to four weeks of evidence-gathering (bank statements, receipts), 5 to 10 per cent of capacity uplift if your actual spending is below HEM.
4. Pay down or consolidate high-interest personal debts. Personal loan and car loan repayments are dollar-for-dollar deductions from servicing surplus. A $15,000 personal loan on a 5-year term at 11 per cent represents $325 a month, reducing capacity by ~$50,000.

Things that do not work as well as people expect. Increasing your declared income with overtime or bonuses is harder than it sounds: most lenders only count overtime or bonus income at 80 per cent of the average across the past two years, and many require it to be a contractual entitlement. Quick income-increase tactics rarely pass the lender's policy. Reducing day-to-day spending in the three months pre-application is more useful because it shows directly in the bank statements lenders pull.

What a $120,000 single earner can actually borrow in May 2026

To give a concrete order of magnitude, here is the indicative borrowing capacity for a single applicant on $120,000 gross income, no dependents, with the major-bank average serviceability calculation in May 2026:

• Baseline (clean, no debts, no credit cards): roughly $720,000 to $760,000 borrowing capacity
• With a $20,000 credit card limit (zero balance): roughly $640,000 to $680,000 (down $80,000)
• With $458/month HECS repayment ($100k debt): roughly $650,000 to $690,000 (down $70,000)
• With a $25,000 car loan at $590/month: roughly $625,000 to $665,000 (down $90,000)
• All of the above stacked: roughly $470,000 to $520,000 (down $250,000)

These numbers are illustrative. The actual figure for your situation depends on the lender, the specific product, your credit history, and your actual living expenses. They show the order of magnitude: the gap between a "clean" applicant and one with average commitments is roughly $250,000 of borrowing capacity, the difference between buying an apartment and a house in most parts of Sydney and Melbourne.

Non-bank lenders and "exception" capacity

A meaningful subset of borrowers, particularly self-employed, recent migrants, or applicants with non-standard income, gets a materially higher capacity from non-bank lenders that apply lower buffers, alternative income verification, or specific carve-outs (medico loans, professional loans). The trade-off is usually a higher rate and tighter LVR cap. For some borrowers, the higher rate is genuinely worth paying because the alternative is "no loan at all." For most others, the major-bank assessment is the better starting point. The right diagnostic is not "what is the maximum number I can find on any lender's calculator", but "what is the loan size that fits this household's actual income, expenses, and risk tolerance, on a sustainable basis." If a $50,000 capacity uplift requires a 0.50 per cent rate premium that costs $190 a month on the new loan, the uplift is no longer free.

How to get a real number

Online calculators are useful for a rough order of magnitude but are not lender policy. The best path to a real number is one of:

1. Run your numbers through our borrowing power calculator, which is calibrated to major-bank serviceability policy as of 2026. It is more conservative than most online tools and closer to what an actual lender will approve.
2. Apply for a formal pre-approval with a lender or broker. Pre-approval involves a full credit check, income verification, and policy assessment. It is the definitive answer to "how much will this lender approve."
3. Talk to a broker. A broker can run your scenario against 5 to 10 lender policies in parallel and identify which lender will give you the highest sustainable capacity for your situation. We refer applications to ALG, our credit-licensed broker partner; the conversation is free and there is no obligation to proceed.

Borrowing capacity in May 2026 is tighter than it was two years ago because of the 3 per cent buffer, higher product rates, and the indexed cost of living. The good news is that the four levers above are entirely within your control, and a borrower who works them systematically in the three months before applying can lift their capacity by $100,000 to $200,000 without any change in income.