One bank told our client they could borrow $850,000.
Another said $900,000.
Same client. Same income. Same debts.
So why the $50,000 difference?
The borrower hadn’t changed.
The lenders had.
There Isn’t One Borrowing Capacity
When someone asks, “How much can I borrow?”, it sounds like there should be one answer.
You earn a certain amount.
You have certain debts.
You spend a certain amount.
Therefore, you can borrow X.
It doesn’t quite work that way.
Think of borrowing capacity as a calculation with a handful of dials.
Income is one.
Living expenses are another.
Then you’ve got your existing debts, credit-card limits and the new loan you’re applying for.
The lender takes all of that information and runs it through its own servicing methodology and credit policy.
Change one of those inputs, or the way it is treated, and the result can change too.
Sometimes by quite a bit.
Your Salary Is Only the Starting Point
Say you earn $140,000 a year.
That’s an important number, but there’s more to the calculation.
What if part of that income comes from overtime, bonuses or commissions?
How long have you been receiving it?
Is it consistent?
A lender may be comfortable using more of that income than another lender. There can also be different requirements around the history and evidence needed to support it.
So two lenders can look at the same income and arrive at different numbers.
They’re applying their own rules to the same information.
Then There’s What You Spend
You might know your household spends around $5,000 a month.
The lender still has to assess your living expenses under its own methodology.
That can involve your declared expenses and, depending on the lender and your circumstances, benchmark measures used as part of the assessment.
Now imagine two lenders looking at the same household but arriving at different assessed expenses.
The difference might look small.
When you’re working out how much income is available to support a new mortgage, it can become significant.
And That Credit Card You Don’t Use?
This is where borrowers often stop and think, “Hang on.”
Imagine you have a $20,000 credit-card limit and owe nothing.
You haven’t used it for months.
You’d probably leave it off your mental list of debts.
The lender can still take the available limit into account when assessing your application because it represents credit you could draw on.
So someone with a $20,000 limit can have a different servicing position from someone with a $5,000 limit, even if both cards have a $0 balance.
That’s the sort of detail you don’t see when you’re doing the maths yourself.
Then the Lender Tests the New Mortgage
The lender also needs to work out whether you could afford the proposed loan under its assessment settings.
The rate you actually pay isn’t necessarily the rate used for the serviceability test.
For applicable ADIs, APRA requires a serviceability buffer of at least three percentage points above the loan interest rate, unless APRA determines otherwise.
So a loan priced at 5.8% can be assessed at a substantially higher rate.
You won’t necessarily pay that higher rate.
The point is to test whether the loan still looks manageable if circumstances become less favourable.
Put All of That Together
Income.
Expenses.
Existing debts.
Credit-card limits.
The proposed mortgage.
The assessment settings.
Then there are the lender’s own policies around how those things are treated.
Suddenly, “How much can I borrow?” isn’t such a simple question.
And that’s where our client comes back into the picture.
One lender said $850,000.
Another said $900,000.
The client hadn’t suddenly become a better borrower.
Their income hadn’t changed.
Their debts hadn’t changed.
The only thing that changed was who was assessing the application.
So Which Bank Was Right?
That’s not really the point.
Each lender was answering a slightly different question:
“How much would we lend this borrower under our rules?”
That’s a lender assessment, not a universal value attached to the borrower.
And $50,000 is not a small difference when you’re buying property.
It could mean the difference between being able to make an offer or having to keep looking.
It could change the suburbs you can consider.
It could change how much deposit you need.
That doesn’t mean you should automatically choose the lender offering the biggest borrowing capacity. The loan still needs to make sense for your circumstances.
But if you’re close to your borrowing limit, understanding why the numbers differ can be important.
Because the first number you get isn’t necessarily the end of the story.
It’s the result of that lender’s assessment.
And that’s what happened with our client.
$850,000 from one bank.
$900,000 from another.
Same borrower.
Different lender.
Different result.
So the next time someone tells you how much you can borrow, don’t just look at the number.
Look at how they got there.
