Why Two People Can Borrow Different Amounts on the Same Income

Two people can earn exactly the same salary and still receive very different home loan borrowing estimates.

This is because lenders do not assess income in isolation. They assess how much income is available after allowing for expenses, debts, dependants, existing commitments and the proposed home loan repayments.

Your borrowing capacity is based on your complete financial position, not simply the amount shown on your payslip.

Income Is Only the Starting Point

Income helps the lender understand the money regularly coming into the household.

However, the lender also needs to consider how much of that income is already committed.

Two applicants each earning $100,000 may have very different circumstances.

Although their headline salaries are the same, Applicant Two may have less income available to support a new home loan.

The lender may therefore calculate a lower borrowing amount.

Existing Debts Reduce Borrowing Capacity

Existing debts commonly affect how much you may be able to borrow.

These can include:

• Home loans

• Investment loans

• Personal loans

• Vehicle finance

• Credit cards

• Store cards

• Lines of credit

• Buy now, pay later accounts

• Tax debts

• Student loan obligations

• Guarantees for another person’s debt

The lender will generally include the required repayments or an assessed commitment when calculating your borrowing capacity.

Even a debt with a relatively low balance can affect the result if the required repayment is high.

Credit Card Limits Matter

A credit card may affect your borrowing capacity even if you repay the balance in full every month.

Lenders can assess a financial commitment based on the approved credit limit rather than only the amount currently owing.

For example, a credit card with a $20,000 limit gives the account holder the ability to borrow up to $20,000. The lender may therefore include an assumed monthly repayment when calculating serviceability.

Reducing or closing an unused credit card limit may improve an assessment in some circumstances. However, the effect will depend on the lender and the rest of the application.

The lender may require evidence that the limit has been reduced or the account has been closed.

Living Expenses Are Different for Every Household

Lenders ask applicants to provide realistic information about their regular household expenses.

These may include:

• Groceries

• Utilities

• Transport

• Insurance

• Telephone and internet

• Childcare

• School fees

• Medical expenses

• Entertainment

• Subscriptions

• Private health insurance

• Pet expenses

• Rent or board

• Other recurring commitments

A person living alone with relatively low expenses may have a different result from someone supporting a larger household on the same income.

Lenders may compare the declared expenses against transaction information, application details and their own assessment methods.

Expenses should be provided accurately. Artificially reducing or omitting expenses could delay the application and may result in an inaccurate assessment.

Dependants Can Affect the Calculation

Dependants can increase regular household expenses.

The lender may consider the number and age of dependants together with costs such as childcare, education, food, clothing and healthcare.

This does not mean people with children cannot obtain home loans. It means the lender must allow for the household’s existing financial responsibilities when assessing the proposed debt.

Two borrowers earning the same income but having different family circumstances may therefore receive different borrowing estimates.

Not All Income Is Treated Equally

Two people may report the same annual income, but the lender may not use the same amount for each application.

Income can include:

• Base salary

• Casual income

• Overtime

• Commission

• Bonuses

• Allowances

• Rental income

• Business income

• Government payments

• Investment income

• Foreign income

A lender may use all, part or none of a particular income source depending on its consistency, history and likelihood of continuing.

For example, a stable base salary may be assessed differently from a one-off bonus or irregular overtime.

Self-employed borrowers may also need to provide tax returns and business financial statements so the lender can assess sustainable income.

Different lenders may interpret the same financial information differently under their individual credit policies.

Employment Type and History Matter

The lender may consider:

• Whether employment is permanent, casual or contractual

• How long you have held your current position

• How long you have worked within the same industry

• Whether a probation period applies

• The consistency of your hours

• Whether your income has recently changed

• Whether the employment appears likely to continue

A person with a consistent permanent salary may receive a different result from someone earning the same amount through irregular casual hours or short-term contracts.

That does not mean one application will automatically be declined. It may mean additional evidence or a lender with a more appropriate policy is required.

Lenders Assess Repayments at a Higher Rate

Lenders generally do not assess affordability using only the home loan’s current interest rate.

They usually assess whether the borrower could manage repayments at a higher assessment rate to allow for potential rate increases and financial pressure.

Because of this, the repayment used in the lender’s borrowing calculation may be higher than the repayment shown on a basic online calculator.

The assessment rate and method can differ between lenders and may change over time.

Your Deposit and LVR Can Affect the Result

A larger deposit does not necessarily increase your income-based borrowing capacity, but it can affect:

• The amount you need to borrow

• Your loan-to-value ratio

• Whether Lenders Mortgage Insurance applies

• The lenders and products potentially available

• The lender’s overall risk assessment

• The money you retain after settlement

A borrower with a smaller deposit may also need to demonstrate genuine savings or meet additional requirements.

Two applicants on the same income could receive different outcomes if one has a substantially stronger deposit or equity position.

Credit History May Affect Available Options

The lender may review your credit report and repayment history.

Relevant information can include:

• Existing credit accounts

• Credit limits

• Recent credit enquiries

• Late payments

• Defaults

• Serious credit infringements

• Repayment history

• Court information where applicable

A strong credit history does not guarantee approval, and an issue on a credit report does not always mean finance is unavailable.

However, it may affect which lenders are prepared to consider the application, the evidence required and the terms potentially available.

The Loan Purpose and Property Can Matter

Borrowing estimates may also differ depending on whether the loan is for:

• A principal home

• An investment property

• Refinancing

• Construction

• Debt consolidation

• Accessing property equity

The proposed property may also affect the final amount available.

The lender will need to be satisfied that the property is acceptable security and that the loan remains within its valuation and LVR requirements.

A pre-approval based on income does not guarantee approval for every property.

Loan Terms Can Produce Different Results

Borrowing estimates may change depending on:

• The proposed loan term

• Principal-and-interest or interest-only repayments

• Fixed or variable rates

• Existing loan terms

• The borrower’s anticipated retirement position

• The lender’s policy for the requested loan structure

A longer loan term may reduce the calculated repayment, but it can also result in more interest being paid over the life of the loan.

The loan structure should be based on the borrower’s circumstances and objectives rather than simply choosing the arrangement that produces the largest estimated borrowing amount.

Online Calculators Are Only Estimates

Online borrowing calculators can provide a useful starting point, but they use standard assumptions.

They may not fully account for:

• A lender’s current policy

• Your specific income type

• Household expenses

• Existing loan assessment rates

• Credit card limits

• Property details

• Credit history

• LMI requirements

• Supporting financial documents

This is why two online calculators can produce different estimates even when the same income is entered.

A borrowing calculator result does not guarantee eligibility or formal loan approval.

Can You Improve Your Borrowing Position?

Depending on your circumstances, possible steps may include:

• Reducing higher-interest personal debts

• Lowering unnecessary credit card limits

• Closing unused credit facilities

• Building a larger deposit

• Maintaining a consistent savings history

• Reviewing regular expenses

• Correcting inaccurate credit report information

• Providing complete evidence of income

• Avoiding new credit applications before applying

• Allowing recent income or employment changes to become established

These steps do not guarantee that your borrowing capacity will increase or that a home loan will be approved.

You should not close accounts, repay debts or restructure your finances solely for a loan application without considering the broader financial consequences.

How Can a Mortgage Broker Help?

Because lender policies differ, the same borrower may receive different borrowing estimates across different lenders.

A mortgage broker can:

• Review your income, expenses and liabilities

• Identify factors affecting your borrowing position

• Explain how participating lenders may assess your income

• Compare suitable lender policies

• Estimate your proposed borrowing capacity

• Review your deposit and LVR

• Explain the documents that may be required

• Help prepare and submit your application

The broker cannot guarantee a borrowing amount or approval. The final calculation is completed by the lender after reviewing the full application and supporting information.

Speak With Homefront Mortgages

Your salary is only one part of the home loan assessment.

Homefront Mortgages can review your complete financial position and help explain why your borrowing estimate may differ from another person’s, even when your incomes appear similar.

We can compare suitable options available through our lender panel and help you understand which factors may be influencing the result.

We do not represent every lender or home loan available in the market. The lender makes the final decision regarding borrowing capacity, loan approval, the loan amount, interest rate and applicable conditions.

Important Information

This article provides general information only and does not constitute personal financial, credit, tax or legal advice. It does not take into account your objectives, financial situation or individual needs.

Borrowing-capacity estimates vary between lenders and can change based on interest rates, assessment methods, credit policies and the information provided.

An estimate, calculator result or pre-approval does not guarantee formal approval or confirm that a particular loan amount is affordable for your circumstances.

Loan approval is subject to lender assessment, satisfactory verification, acceptable property security, valuation and applicable lending criteria. Interest rates, fees, policies, terms and conditions may change. Fees and charges may apply.