Simple hacks to improve your serviceability assessment

What lenders actually look at during serviceability assessment

Serviceability assessment measures whether you can afford the loan repayments based on your income, expenses, and existing debts. Lenders calculate this using a test interest rate that sits above current home loan rates, typically by around 3%, to ensure you could still make repayments if rates rise. They also assess your living expenses against either your actual spending or a benchmark figure called the Household Expenditure Measure (HEM), whichever is higher.

Consider a couple applying for an owner occupied home loan with a combined income of $140,000. One partner has a car loan with $8,000 remaining and a credit card with a $15,000 limit that carries a small balance. The other has an outstanding personal loan of $6,000. When the lender runs their serviceability calculation, they assess the car loan and personal loan at their actual repayment amounts, but the credit card gets treated as though the full $15,000 limit is being used, even if only $2,000 is owed. That single card can reduce their borrowing capacity by around $75,000 to $90,000, depending on the lender.

This is where small adjustments make a measurable difference. Closing unused credit accounts, paying down short-term debts, or restructuring existing commitments before you apply for a home loan changes the numbers lenders see. These aren't loopholes or workarounds, they're legitimate ways to present your financial position more accurately.

Reducing credit limits before you apply

Lenders assess credit cards and personal lines of credit based on their limit, not the balance. If you have a credit card with a $20,000 limit and owe $500, the lender assumes you could max it out tomorrow and calculates your repayment capacity accordingly. That assumption can cost you tens of thousands in borrowing capacity.

Before submitting a home loan application, contact your card provider and request a limit reduction to match your actual usage, or close accounts you no longer need. A $10,000 credit limit reduction can improve your borrowing capacity by approximately $50,000, depending on your income and the lender's assessment rate. If you're applying jointly, both applicants should review their credit arrangements, as every limit counts.

Some applicants hesitate to close long-standing accounts because they believe it will harm their credit score. In our experience, the impact on your score from closing an account is minimal compared to the improvement in serviceability. If you're unsure which accounts to adjust, a broker can model different scenarios and show you exactly how each change affects your loan amount.

Timing debt repayments to maximise income assessment

Paying off a car loan or personal loan before you apply can immediately increase what you can borrow, but the timing matters. Lenders assess your debts based on what appears on your credit file and your bank statements at the time of application. If you make a final payment three days before applying, that debt might still show as active when the lender pulls your credit report.

For a clear assessment, pay off smaller debts at least two weeks before lodging your application. Request written confirmation from the lender that the account is closed, and wait for the final statement. Some lenders will accept a closure letter and updated bank statements showing no further debits, which speeds up the process. If you're refinancing or purchasing within a tight timeframe, discuss the timing with your broker so the debt clearance aligns with your application lodgement.

In a scenario like this, an applicant earning $95,000 annually with a $12,000 personal loan and ongoing childcare costs wanted to improve their borrowing capacity before making an offer. They paid out the personal loan using savings and reduced their credit card limit from $18,000 to $5,000. Those two changes increased their maximum loan amount by approximately $110,000, enough to move from a unit to a townhouse in their preferred area.

How lenders assess rental income and investment property expenses

If you own an investment property and want to borrow again, lenders will assess the rental income and the costs associated with that property. Most lenders apply a shading factor to rental income, meaning they only count 70% to 80% of the gross rent when calculating your income. At the same time, they deduct the full interest-only or principal and interest repayment for the investment loan, plus an allowance for property management, rates, insurance, and maintenance.

The net effect can be negative, especially if the property is recently purchased or negatively geared. An investment property generating $550 per week in rent might only contribute $440 per week to your assessed income after shading, while the loan repayment, strata fees, and other costs could exceed $700 per week. That $260 weekly shortfall reduces your serviceability for the new loan.

If your investment property is hurting your borrowing capacity and you need to upsize or purchase another property, consider whether restructuring the loan or switching to principal and interest repayments improves the assessment. Some lenders also allow you to capitalise rental income at a higher rate if you provide a signed lease and evidence of consistent payment history. This varies by lender, so it's worth comparing how different lenders treat investment income before deciding where to apply.

Declared expenses versus HEM benchmarks

Lenders compare your actual living expenses, as shown on bank statements, against a benchmark figure determined by the Household Expenditure Measure. HEM is calculated based on your household size, income, and location. If your actual spending is lower than HEM, the lender uses HEM. If your actual spending is higher, they use the higher figure.

This creates a challenge for applicants who spend significantly above the benchmark. Dining out frequently, subscription services, regular travel, or private school fees all increase your assessed expenses and reduce what you can borrow. Lenders will review three to six months of transaction history and categorise every debit. Recurring payments to Uber Eats, Afterpay instalments, gym memberships, and streaming platforms all add up.

If you're planning to apply for a home loan within the next few months, review your spending now. Cancel subscriptions you don't use, consolidate recurring payments, and reduce discretionary spending during the assessment period. Lenders won't penalise you for occasional purchases, but a pattern of high spending will be factored into their calculation. Reducing your monthly outgoings by $500 can add around $25,000 to $30,000 to your borrowing capacity, depending on the lender and loan structure.

Income documentation for self-employed applicants

Self-employed applicants face a different serviceability assessment because their income fluctuates and lenders require tax returns or financial statements to verify earnings. Most lenders average your income over the past two financial years, though some will accept a single year if your income is stable or increasing.

The income figure used isn't your gross revenue, it's your taxable income after deductions. If you've claimed significant deductions for vehicle expenses, home office costs, depreciation, or other business expenses, your taxable income may be lower than what you actually earn. This reduces your serviceability, even if your cash flow is strong.

Before applying, speak with your accountant about how your tax structure affects your assessed income. In some cases, adding back certain non-cash deductions like depreciation can increase your borrowing capacity, provided the lender accepts that approach. If you're a sole trader or run a company, structuring your income as salary versus dividends can also change the assessment. Some lenders are more flexible with self-employed income than others, so choosing the right lender matters as much as preparing your documentation.

Using an offset account to demonstrate savings discipline

An offset account linked to your variable rate home loan reduces the interest you pay and provides lenders with evidence of consistent savings behaviour. When assessing your application, lenders review your transaction history to understand how you manage money. A stable or growing balance in an offset account signals financial discipline, while an account that frequently hits zero raises questions about your ability to manage repayments.

If you're planning to refinance or apply for a new loan, directing your income into an offset account for at least three months before applying shows a pattern of saving rather than spending. This won't directly increase your borrowing capacity, but it strengthens your application by demonstrating genuine savings and reducing the lender's perceived risk.

For applicants who are refinancing an existing loan, switching to a loan with a linked offset and building a buffer in that account also provides flexibility if your income drops or expenses rise. Lenders view this favourably, particularly if you're self-employed or work in an industry with variable income.

Split loan structures and their impact on serviceability

A split loan divides your total borrowing between a fixed rate and a variable rate portion, allowing you to lock in part of your repayment while keeping flexibility on the rest. From a serviceability perspective, lenders assess split loans based on the blended repayment amount and the test rate applied to each portion.

If you fix 50% of your loan at a lower rate and keep the other 50% variable, your initial repayments may be lower than a fully variable loan, but lenders still test your ability to service the loan at a higher rate. The structure itself doesn't increase your borrowing capacity, but it can make your repayments more predictable, which helps with budgeting and demonstrating repayment reliability over time.

Some applicants use a split structure to pay down the variable portion faster using an offset account while maintaining the security of a fixed rate on the remainder. This approach works well if you expect your income to increase or if you're planning to make lump sum repayments from a bonus or sale of another asset. When structuring a split loan, consider how each portion will be assessed during future applications, particularly if you plan to borrow again within a few years.

Adjusting your application to suit different lender policies

Every lender uses a slightly different serviceability model. Some lenders assess credit card limits at 3% of the balance, others at 3.8%. Some apply HEM strictly, others allow detailed expense declarations if you can justify them. Some lenders shade rental income at 80%, others at 70%. These differences can result in a variation of $50,000 to $100,000 in borrowing capacity for the same applicant.

If your circumstances include investment properties, self-employment, or higher-than-average expenses, applying to the wrong lender can result in a rejection or a lower pre-approval than you need. A broker can compare how different lenders assess your situation and submit your application to the one most likely to approve your required loan amount. This isn't about finding a lenient lender, it's about matching your financial profile to the lender whose policies align with your situation.

For first home buyers or applicants with limited deposit funds, some lenders also offer more favourable treatment of gifts from family, rent savings history, or government grants. Knowing which lender to approach before you apply saves time and avoids unnecessary credit enquiries on your file.

Your serviceability isn't fixed. Small adjustments to your debts, expenses, and income documentation can make a material difference to what you can borrow and which loan products are available to you. Call one of our team or book an appointment at a time that works for you.

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