Unlock the secrets to passing serviceability in Canberra

Serviceability is the single most important hurdle in a home loan application. You might have the deposit saved and a property picked out, but if your income and expenses don't align with what the lender requires, the application won't progress.

What is serviceability and why does it matter

Serviceability is how lenders determine whether you can afford to repay a home loan. They calculate this by assessing your income, your existing debts, your living expenses, and the interest rate buffer required under current prudential standards. If the numbers show you can comfortably meet repayments even when rates rise, the lender will approve the loan amount. If they don't, you'll either need to reduce the loan amount, pay down existing debts, or adjust your financial position before reapplying.

APRA requires all banks and credit unions to assess your ability to service a loan at a rate at least 3 percentage points higher than the actual loan rate. That means if you're applying for a variable rate home loan at 6.5%, the lender will test whether you can still afford repayments if the rate climbs to 9.5%. This buffer has been in place since late 2021 and remains one of the tightest settings in recent memory.

How lenders calculate your borrowing capacity

Lenders start with your gross income and deduct tax, then subtract your living expenses and any existing debt repayments. What's left over is your surplus income, which needs to be enough to cover the home loan repayments at the buffered rate. Different lenders apply different benchmarks for living expenses. Some use your actual declared expenses, while others apply a minimum floor based on the Household Expenditure Measure, which is updated quarterly and varies depending on household size and income level.

Consider a Canberra buyer earning $95,000 per year with a $400 monthly car loan and no other debt. One lender might assess their living expenses at $2,100 per month based on the HEM benchmark for a single adult. Another lender might use a higher declared figure if the buyer's spending patterns show more discretionary costs. The difference between those two assessments can shift borrowing capacity by $50,000 or more, even though the buyer's income and debts are identical.

Debt-to-income limits also now apply. From February 2026, banks can lend no more than 20 per cent of their new owner-occupier loans to borrowers with a total debt of six times their income or more. If you're earning $100,000, that means total borrowing across all debts above $600,000 will trigger the DTI restriction. You might still qualify under serviceability, but the lender's allocation of high-DTI loans for that quarter might already be used up, which means your application could be declined or delayed even if the numbers work.

Income types that strengthen your application

Permanent full-time and part-time employment income is the most straightforward to verify. Lenders will ask for recent payslips and may request a letter from your employer or access to your employment records via Single Touch Payroll data. Probation periods are treated differently depending on the lender. Some will lend during probation if you've been in the same industry for several years. Others require you to be past probation before they'll proceed.

Casual and contract income is assessed more conservatively. Most lenders require at least 6 to 12 months of consistent earnings and will apply a discount or haircut to account for the variable nature of the work. If you've been casual for two years in the same role with steady hours, you'll have more options than someone who's been casual for three months.

Self-employed buyers need to provide tax returns, often for the most recent two financial years, and a Notice of Assessment from the ATO for each year. Lenders calculate your assessable income by taking the net profit after business expenses and adding back certain deductions like depreciation. If your taxable income fluctuates year to year, some lenders will average the two years while others will use the lower figure. Canberra has a higher than average proportion of public service workers, but the city also supports a substantial base of contractors and sole traders, particularly in consulting, communications, and professional services. If you're moving from PAYG employment to contracting, your serviceability position may shift even if your take-home income stays the same, because lenders treat the income sources differently.

Expenses that reduce what you can borrow

Existing debts have the largest impact. Credit card limits are assessed as if you're using the full limit each month, even if you pay the balance in full. A $10,000 credit card limit will reduce your borrowing capacity by roughly $40,000 to $50,000 depending on the lender's calculation method. Personal loans, car loans, and Buy Now Pay Later arrangements are all factored in at their actual repayment amounts.

Living expenses are either declared by you or estimated by the lender using a benchmark. If your actual spending is below the lender's minimum floor, they'll use the floor. If your actual spending is higher, they'll use your declared figure and may ask for bank statements to verify it. Childcare costs, school fees, and other dependent expenses are included. Rent is generally excluded from ongoing expenses once you purchase, because the lender assumes you'll be living in the property you're buying.

In a scenario where a Canberra couple earning a combined $140,000 applies with a $15,000 car loan, two credit cards totalling $18,000 in limits, and a modest HECS debt, their borrowing capacity might sit around $600,000 to $650,000 depending on the lender. If they close one credit card and reduce the other to $5,000, their capacity could increase by $50,000 without any change to their income.

Why some buyers are declined despite having a deposit

A strong deposit doesn't override serviceability. You might have $80,000 saved and be looking at a property priced within the price caps for the Australian Government 5% Deposit Scheme, but if your income and expenses don't support the loan amount required, the lender won't proceed. This is particularly relevant in Canberra, where the scheme's price cap sits at $1,000,000 across all areas. A buyer purchasing at that cap with a 5% deposit needs to borrow $950,000, and serviceability at that loan amount requires a household income well above $150,000 in most cases, depending on other debts and living costs.

Another common issue is undisclosed liabilities. If you've recently taken out a new credit card, increased an existing limit, or co-signed a loan for someone else, that liability will show up on your credit file and will be included in the lender's assessment whether you mentioned it or not. Co-signed loans are particularly problematic because the lender treats you as if you're responsible for the full repayment, even if the other borrower is making all the payments.

How a broker helps you structure your application

Different lenders assess income and expenses in different ways, and knowing which lender suits your situation can make the difference between approval and decline. A broker reviews your financial position before you apply, identifies which debts to pay down or restructure, and matches you with lenders whose serviceability policies align with your income type and expenses. We also handle the documentation, liaise with the lender throughout the assessment, and make sure the application is submitted correctly the first time, which reduces delays and avoids unnecessary credit enquiries on your file.

If you're ready to understand what you can borrow and which lenders will work for your situation, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions