What is a serviceability assessment?

A serviceability assessment is a lender’s evaluation of your ability to meet home loan repayments - both now and in the future. It considers your income, expenses, existing debts, and other financial commitments.

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The result determines your borrowing capacity: how much the lender is willing to lend you. Different lenders use different criteria, so your borrowing power can vary from lender to lender.

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Lenders also apply a buffer, typically 3% above the current interest rate to help make sure you could still afford repayments if rates rise.

How does income impact your serviceability?

Your income is a key factor. Lenders typically consider:

• Base salary or wages - your primary, verified employment income
• Overtime or bonuses - but only if they’re consistent and ongoing (irregular bonuses may be discounted)
• Rental income - most lenders only count up to 80% of gross rental income, to account for vacancies and costs
• Investment income - dividends or share returns (often discounted due to market volatility)
• Self-employed income - typically assessed over 2 years of tax returns or financial statements
• Government benefits - such as family tax benefit or pensions (where applicable)

Lenders focus on consistent, sustainable income rather than short-term spikes. Higher income improves serviceability, but it’s always assessed alongside your expenses and debts.

How do expenses affect your serviceability?

Your living expenses reduce the income available for loan repayments. Higher ongoing expenses mean lower borrowing capacity.

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Lenders typically look at:

• Household living costs - groceries, utilities, transport, and insurance
• Existing housing costs - rent or current mortgage repayments
• Childcare and school fees
• Subscriptions, memberships, and streaming services - lenders review bank statements and flag recurring costs
• Discretionary spending - dining out, entertainment, and non-essential purchases

Do lenders use expense benchmarks?

Yes. Lenders apply expense benchmarks to estimate minimum living costs. The most common is the Household Expenditure Measure (HEM), which estimates baseline spending based on household size and income.

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If your declared expenses are below the benchmark, the lender uses the benchmark figure instead. This helps prevent applicants from understating their costs.

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Existing debts reduce your serviceability because they represent ongoing obligations that compete with your loan repayments.

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Lenders consider:

• Credit card limits - the full limit, not just your current balance (a $20,000 limit reduces borrowing power even if the balance is $0)
• Personal loans and car loans - including remaining repayment obligations
• Buy now, pay later (BNPL) services  
• HECS-HELP debt - compulsory repayments are deducted from your income

Reducing debts or lowering credit limits before applying can help improve your serviceability. Even closing an unused credit card can make a difference.

How do lenders stress test repayments?

As part of the assessment, lenders test whether you can afford repayments at a rate higher than the current one. This is called the serviceability buffer or stress test.

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APRA (the Australian Prudential Regulation Authority) requires lenders to add a buffer of at least 3% to the interest rate. So if the loan rate is 6% p.a., you’re assessed on your ability to repay at 9% p.a..

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This buffer applies to all your existing home loans too - not just the one you’re applying for.

Serviceability example

Say you’re applying for a $500,000 loan at 6.0% p.a. over 30 years. Your actual monthly repayment would be about $3,000.

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With the 3% p.a. buffer, the lender assesses you at 9.0% p.a.. At that rate, your repayment would be about $4,025. The lender needs to see that you can afford $4,025 per month after expenses and existing debts.

Can reducing expenses improve serviceability?

Yes. Reducing recurring expenses increases the income available for repayments. This can directly improve your borrowing capacity.

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However, lenders assess your full financial profile - not just one category. Cutting streaming subscriptions alone won’t offset high credit card debt, for example.

How can you improve your serviceability?

There are practical steps you can take before applying:

• Reduce or close credit cards - even unused cards with a high limit reduce your borrowing power
• Pay down existing debts - personal loans, car loans, and BNPL balances all count against you
• Cut recurring subscriptions - lenders review bank statements and flag regular outgoings
• Avoid payday loans - lenders may view these as red flags for financial stress
• Increase your income - a pay rise, second job, or consistent overtime can help (if documented)
• Save consistently - demonstrating regular savings shows financial discipline
• Live as if you’re already paying a mortgage - set aside hypothetical repayments to prove affordability

How does serviceability relate to borrowing power?

Serviceability is the main factor that determines your borrowing power. If your income comfortably covers expenses and debts (including the buffer), you can borrow more.

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Different lenders calculate serviceability differently. This means your borrowing power can vary significantly depending on which lender you apply with.

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Use a borrowing power calculator to estimate how much you could borrow before applying for an Unloan home loan.  

What is the APRA serviceability buffer?

The APRA serviceability buffer is a rule set by the Australian Prudential Regulation Authority. It requires lenders to assess your ability to repay at an interest rate at least 3% p.a. above the loan’s actual rate.

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The buffer exists to protect borrowers from financial stress if interest rates rise. It’s applied to all regulated lenders in Australia.

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The buffer has a direct impact on how much you can borrow. When rates are high and the buffer is added on top, borrowing capacity can be significantly constrained.

How does Unloan assess serviceability?

Unloan assesses serviceability by reviewing your income, debts, and expenses. The assessment follows responsible lending obligations and includes the APRA 3% buffer.

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You can estimate your borrowing power using our borrowing calculator.