How Lending Assessments Are Impacting Borrowing Power in Today’s Market
The lending landscape in Australia continues to challenge borrowers, and mortgage brokers are at the forefront of helping clients navigate it. But with APRA holding the line on its key macroprudential settings, the big question remains: Are the current serviceability rules still fit for purpose?
What Is APRA’s Serviceability Buffer and Why Does It Matter?
APRA (Australian Prudential Regulation Authority) requires all authorised deposit-taking institutions (ADIs) – banks, credit unions and building societies – to apply a minimum 3 percentage-point buffer above the actual loan rate when assessing a borrower’s capacity. For example, if a loan product is priced at 6%, the assessment rate becomes 9%.
This is designed to ensure borrowers can absorb rate increases without financial stress. Given that interest rates have stabilised and arrears remain low, APRA believes the buffer remains an essential safety net for systemic stability.
The Impact on Borrowing Power
This buffer, combined with the new Debt-to-Income (DTI) portfolio cap introduced in February 2026, significantly constrains borrowing capacity. The DTI rule restricts lenders so that no more than 20% of new loans each quarter can go to borrowers with a debt-to-income ratio of six or higher
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The REAL Reason Property Prices Increased
For many clients, the reality is stark:
- Borrowing power is down by roughly 25–35% compared to assessments at the actual lending rate.
- A single income earner on $100,000 annually may struggle to borrow more than $400,000–$450,000 despite feeling they can handle higher repayments at current rates.
Industry Pushback and APRA’s Position
The industry has not been silent. The Finance Brokers Association of Australia (FBAA) has argued for reducing the buffer to 2.5%, claiming this could unlock an estimated $276 billion in capacity and assist almost 400,000 first-home buyers. However, APRA maintains that high global uncertainty, high household debt (among the world’s highest), and inflationary risks justify caution.
APRA’s Chair, John Lonsdale, reiterated that these settings are forward-looking tools designed to prevent a repeat of “boom-bust cycles” in property lending.
What Does It Mean for Brokers and Borrowers?
For brokers, understanding which lenders still have DTI quota space – and knowing how internal credit policies differ – can make or break a deal for clients nearing the DTI threshold. Practical steps include:
- Reviewing unused credit card limits – every $10,000 of limit can reduce borrowing power by up to $60,000.
- Pre-application debt clean-up – repaying personal loans or car finance can add tens of thousands to borrowing capacity.
- Highlighting non-salary income – rental, bonuses and overtime can all play a role if documented correctly.
So, Are the Buffers Still Fit for Purpose?
From a regulatory perspective, yes: the buffers have proven effective at maintaining stability during volatile economic periods. From a borrower’s perspective, especially first-home buyers and investors, the answer feels very different.
As brokers, our opportunity lies in educating clients early, setting realistic expectations and structuring deals smartly within these constraints. In this environment, advice matters more than ever.
✅ Key Takeaways for Brokers
- APRA serviceability buffer remains 3% above product rate.
- DTI cap at 20% of new lending above 6x income is in force.
- Borrowing power remains materially lower than consumers expect.
- Broker expertise is critical for navigating lender policy variations and maximising approval chances.
Q&A: APRA Serviceability Buffers & Borrowing Power
Q1: What is the APRA serviceability buffer?
The APRA buffer is a 3 percentage-point addition to the actual loan interest rate used by lenders to test if a borrower can afford repayments if rates rise. For example, a loan at 6% is assessed at 9%.
Q2: Why does APRA apply this buffer?
It acts as a risk safeguard, ensuring borrowers can handle future interest rate increases, reducing the chance of mortgage stress and protecting financial system stability.
Q3: Has the buffer changed in 2026?
No. As of May 2026, APRA confirmed the buffer remains at 3%, despite industry calls to reduce it. High household debt and global uncertainty were key reasons for maintaining the setting.
Q4: How does the buffer affect borrowing power?
It significantly reduces borrowing capacity by around 25–35%, as lenders assess based on the higher “stress-test” rate. For many buyers, this means qualifying for smaller loans than expected.
Q5: What is the new DTI cap and why does it matter?
From February 2026, lenders can only allow 20% of new loans to customers with a debt-to-income ratio (DTI) of 6 or more. This means high-income but highly-leveraged borrowers face tighter access to credit, especially late in a lender’s quarterly cycle.
Q6: Can borrowers do anything to improve borrowing power under these rules?
Yes. Practical steps include:
- Closing unused credit cards (as limits lower borrowing capacity).
- Paying down personal or car loans before applying.
- Documenting all income sources such as rent, bonuses or overtime.
Q7: Is the buffer expected to decrease soon?
Unlikely in the near term. APRA has made no indication it plans to cut the buffer, emphasising financial stability over boosting borrowing power.
