Borrowing capacity vs what you can actually afford

The bank asks whether the loan still services at a stressed rate. You ask whether the household still functions at a realistic rate, with a reserve.

Lenders assess income, expenses, existing debts, credit history and the proposed loan. APRA’s 3 percentage-point buffer is applied to the product rate, ignoring short honeymoon discounts. The aim is that new borrowers can still pay if rates or expenses move. It is not a forecast that your rate will rise by 3 points.

Moneysmart’s household exercise is different: see what the loan costs if rates rise by 2 percentage points. That is a comfort test, not the lender’s statutory buffer. Run both. Do not treat a pre-approval letter as the second test already done.

From 1 February 2026, APRA allows each ADI to write up to 20 per cent of new owner-occupier loans and 20 per cent of new investor loans at a DTI of six or more, subject to exemptions. A household can be approved above six times income if it fits that bank’s remaining quota and policy. A household can be declined below six. The limit is on the bank’s book.

The RBA’s May 2026 investor work found that around 20 per cent of leveraged housing investors already had a housing DTI above six in 2021. High DTI is a vulnerability marker, not a recommendation to borrow up to it.

Write the annual outgoing at today’s rate: principal and interest, or interest-only if that is the product, plus rates, insurance, strata or maintenance, and, if you rentvest, your own rent. Subtract that from income after tax and after the rest of life. What remains is the surplus. Then raise the rate by 2 percentage points, as Moneysmart suggests, and see whether the surplus is still a number you can live with.

Moneysmart’s emergency-fund target is three months of expenses, and some households need more. If the only way the surplus works is by spending that reserve, the purchase is funded on paper and fragile in cash. Rentvestors have two rent lines: the tenant’s, and their own. See rentvesting versus buying a home.

• Taking the pre-approval maximum as the target price.
• Using APRA’s 3-point buffer as a prediction of future rates.
• Ignoring holding costs because the lender used a different expense figure.
• Treating a DTI below six as proof the loan is conservative.
• Leaving no reserve because the calculator showed a funded deposit.

Districts does not assess serviceability and does not approve loans. The rentvesting and yield calculators take an LVR and a rate you type. If savings are short they show a deposit shortfall. They do not know your income. They do not apply APRA’s buffer. A shortfall or an unfunded gap is a funding flag, not a credit decision.

A maximum loan does not establish that the property is suitable, that the rent will be achieved, or that you will sleep. It does not include every holding cost the yield guide lists. It does not replace a lender’s actual assessment of this application.

Obtain a written assessment from a lender or broker, with the rate, the buffer they applied, and whether LMI applies. Separately, write your own surplus at today’s rate and at plus 2 percentage points, including holding costs and any rent you pay. Keep a reserve. If the bank number is larger than the comfortable number, the comfortable number is the one that constrains the bid. Then go back to the deposit and cash-to-settle lines.