How serviceability works in Australia (2026 edition)
Every Australian lender runs a slightly different serviceability calculation, but they all share the same skeleton — APRA buffer, HEM benchmark, income shading, DTI cap. This guide walks through every input that moves the max-borrow number, what the major-four typically do in 2026, and where lenders diverge in practice.
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1. What is serviceability?
Serviceability is the lender's test of whether a borrower can comfortably afford the proposed loan repayments plus their existing commitments plus ordinary living expenses, with a buffer for future rate rises. It is the single biggest gate between an application and a "yes".
Two regulators shape it in Australia: APRA (prudential standards for ADIs — the buffer rule) and ASIC (responsible-lending obligations under the National Consumer Credit Protection Act). Brokers and lenders share liability for getting the assessment right.
2. The assessment rate
Lenders never assess a loan at the headline rate the customer would actually pay. Instead they stress it. The assessment rate is:
In 2026, the typical numbers are:
- actual_rate — the variable/fixed rate the customer would pay (e.g. 6.14% for CBA OO P&I)
- APRA buffer — 3.0% for every ADI since November 2021
- min_assess_rate (often called the floor) — typically 5.25% across the major-four
So a 6.14% rate becomes a 9.14% assessment rate at most majors. Repayments are then computed at that stressed rate over the loan term.
3. The APRA 3% buffer — a brief history
The serviceability buffer is set by APRA under prudential standard APS 220:
| From | Buffer | Trigger |
|---|---|---|
| Dec 2014 | 2.0% | First explicit guidance after housing-stability concerns |
| Jul 2019 | 2.5% | Replaced the old 7.25% floor |
| Nov 2021 | 3.0% | Cyclical risk increase ahead of cash-rate rises |
The buffer is technically a "floor below which lenders should not go". Lenders may apply higher buffers as policy — some non-banks routinely add 3.5%.
4. Income shading by income type
Lenders don't take gross income at face value. Each income type is shaded — multiplied by a haircut to account for variability and continuity risk.
| Income type | Typical shading at majors | Notes |
|---|---|---|
| PAYG base salary | 100% | Used in full where stable |
| Self-employed (2-yr avg) | 80% | Net profit + addbacks; some use lower of last 2 yrs |
| Casual income | 80% | Often requires 6–12 months continuous |
| Overtime | 50% (essential), 80% (non-essential) | Police/nurses/paramedics get 80–100% |
| Rental income | 75–80% | Macquarie, ING and ubank tend to 80%; CBA/NAB 75% |
| Bonus / commission | 80% | Usually 2-year average |
| Centrelink / FTB | 100% when ongoing | Age-of-child cut-offs apply for FTB |
This is where lenders most visibly disagree — see the lender directory for the per-lender shading table.
5. The HEM benchmark
The Household Expenditure Measure (HEM) is published quarterly by the Melbourne Institute. It estimates the minimum sensible spend on essentials + a "modest discretionary" allowance, segmented by household composition, location and income band.
Lenders use HEM as a floor for declared living expenses — if the borrower's declared expenses are below HEM, the lender substitutes HEM. The actual figure isn't published in dollars (it varies by every applicant profile) but the multiplier each lender applies is well-known to brokers:
Most majors apply a 1.05× HEM multiplier; non-banks often sit at 0.95–1.00×; ubank, Suncorp and BOQ at 1.00×. The variation matters: on a typical scenario, a 0.05× swing on HEM moves borrowing capacity by AUD 10–25k.
6. Existing liabilities
Three liability classes hit serviceability the hardest:
- Existing loans — assessed at the existing repayment, often grossed up by the APRA buffer if a variable rate, or at the loan's actual fixed rate if fixed for >2 years remaining.
- Credit cards — assessed not on the balance but on the limit, at a 3.8% monthly repayment assumption at most majors (3.0% at some non-banks). A AUD 30,000 card limit therefore costs ~AUD 1,140/mo regardless of balance.
- HECS / HELP — the actual ATO repayment based on income bands, deducted from gross. Doesn't compound but does scale linearly with income.
7. The DTI cap
Even if a borrower passes serviceability, lenders apply a debt-to-income (DTI) cap as a secondary gate. Calculated as:
APRA has been encouraging ADIs to limit DTI > 6× exposure to less than 30% of new lending. In practice, most majors will quietly soft-decline at DTI > 7× and aggressively decline beyond 8×. Non-banks tolerate higher DTI on a case-by-case basis.
8. A worked example
PAYG couple, no kids, looking at a AUD 850,000 loan with CBA at 6.14% variable, 30-year term:
- Gross household income: AUD 220,000
- Income shaded: AUD 220,000 × 100% (both PAYG) = AUD 220,000
- Tax + HECS (no HECS) ≈ AUD 49,200 ⟶ Net household: AUD 170,800/yr = AUD 14,233/mo
- Assessment rate: max(6.14% + 3.0%, 5.25%) = 9.14%
- Repayment at 9.14% on AUD 850k over 30y ≈ AUD 6,920/mo
- HEM (couple, no deps, mid-income, metro): ≈ AUD 4,100/mo × 1.05 = AUD 4,305/mo
- One credit card limit AUD 15,000: AUD 570/mo stress
- Surplus: 14,233 − 6,920 − 4,305 − 570 = AUD 2,438/mo ✓ passes
That same applicant at NAB or Westpac would land within ~AUD 80–150/mo of CBA's surplus. At Macquarie (80% rental shading vs 75%, slightly tighter HEM treatment) borrowing capacity might be ~AUD 30k higher. LendScope runs all 40+ side-by-side so you don't have to.
9. Why lenders disagree
Two lenders given identical inputs will routinely produce max-borrow numbers AUD 60,000–120,000 apart. The drivers, in order of magnitude:
- Rate differential — 30 bp lower headline rate ≈ AUD 25k more borrowing on a typical scenario.
- HEM multiplier — 0.95× vs 1.05× ≈ AUD 20k swing.
- Income shading on variable income — biggest swing for self-employed and casual workers.
- CC liability assumption — 3.0% vs 3.8% monthly on a AUD 30k card limit ≈ AUD 30k swing.
- Rental shading — matters for property investors; 75% vs 80% on AUD 50k rental ≈ AUD 15k swing.
- Floor rate — most stuck at 5.25%, but a few non-banks set their floor lower.
10. Tools and references
- LendScope's serviceability calculator — runs all of the above across 40+ lenders in real time.
- Broker glossary — definitions for ACL, NCCP, DTI, LMI, LVR, HEM, APRA.
- APS 220 (APRA) — the prudential standard that sets the buffer.
- HEM explainer (Melbourne Institute) — methodology behind the benchmark.