Borrowing Capacity in 2026: Why Your Number Has Shrunk

The HEM benchmark

The second compressor is the Household Expenditure Measure (HEM), a benchmark published quarterly by the Melbourne Institute that estimates household living expenses by household composition and postcode. Lenders generally use the higher of declared expenses or the relevant HEM figure when assessing a file.

Approximate HEM benchmarks in 2026 (varying by lender, postcode and household composition):

• Single person, capital city: approximately $2,000 to $2,400 per month
• Couple, no dependents, capital city: approximately $3,000 to $3,600 per month
• Couple with two dependents, capital city: approximately $3,800 to $4,500 per month

Dependents and the borrowing-capacity hit

Each dependent child increases the HEM benchmark applied to the household. The increase varies by lender and child age, but commonly reduces borrowing capacity by an estimated $30,000 to $50,000 per child, subject to lender criteria.

A couple with three dependent children may borrow $100,000 to $150,000 less than a couple with no dependents on identical income. The HEM is not a judgement about how the household actually spends; it is a regulatory benchmark the lender is required to apply.

Borrowers with declared expenses well below HEM (frugal households, share arrangements, multi-generational living) are still assessed at the higher HEM figure. The lender's calculator treats HEM as the floor, not declared expenses.

Credit cards and the limit, not the balance

Credit cards compress borrowing capacity based on the credit limit, not the outstanding balance. A $20,000 credit card limit, even with a zero balance, is treated by most lender calculators as if the cardholder is using approximately 3% of the limit per month in minimum repayments, against the full limit's potential drawdown.

Practically, a $20,000 limit can reduce borrowing capacity by $80,000 to $120,000 at typical interest rate and serviceability assumptions, subject to lender criteria. Closing or reducing unused credit limits is one of the few levers a borrower can move quickly to improve capacity ahead of a loan application.

The 2026 DTI cap

The third structural compressor, new in 2026, is APRA's debt-to-income (DTI) cap effective from 1 February 2026. Lenders are required to limit new mortgage lending at DTI of six times income or higher to no more than 20% of new mortgage flows, applied separately to owner-occupier and investor portfolios.

The cap doesn't change the maximum a single borrower could theoretically be approved for. It changes which lenders have headroom to approve a high-DTI file in any given quarter. A lender close to its 20% cap may decline a file that would have approved last quarter, simply because of portfolio composition.

The DTI cap effectively requires high-DTI borrowers to be matched to lenders with current capacity, not just appetite.

What borrowers can actually move

Most of the structural compressors above sit outside the borrower's control. The levers that can be moved before a loan application:

• Reduce or close unused credit card limits. This is often the single highest-impact lever for the time invested.
• Settle small consumer debts (BNPL balances, personal loan tails, store cards). Each clearance shifts the file's overall debt position.
• Document declared expenses accurately rather than padding them. Declared expenses under HEM still trigger the HEM floor, but expenses well above HEM are usually accepted.
• Time the application around income events. A documented bonus, pay rise or commission cycle can lift assessable income.
• Match to the right lender, not the headline lender. Different calculators produce different results on the same file.

How Maxfin maps borrowing capacity

The firm runs the file through several lender calculators before recommending where to submit. The number that matters is not the highest hypothetical capacity at one lender; it is the most credible capacity at a lender currently approving similar files with adequate DTI headroom.

Where the gap between target purchase price and current capacity is meaningful, Maxfin sequences the structural moves (limits, debt clearance, expense documentation, income evidence) before submitting, rather than submitting hopefully and discovering the gap mid-application.

The conversation worth having is the one that produces a credible number, not the one that produces an aspirational one. The aspirational number can fail at the desk of a credit assessor; the credible number can settle.