HEM Benchmarks, Credit Card Limits, and Borrowing Capacity in Australia 2026: A Mortgage Broker Guide

Many Australians are discovering in 2026 that their borrowing capacity is significantly lower than they expected — and the reasons go well beyond interest rates. A combination of revised Household Expenditure Measure (HEM) benchmarks, unchanged APRA serviceability buffers, new debt-to-income (DTI) caps, and the way lenders treat credit card limits is quietly compressing what Australian borrowers can access. Understanding these factors — and working with an experienced mortgage broker — can make a material difference to your home loan outcome.

Understanding Borrowing Capacity in Australia's 2026 Lending Environment

Borrowing capacity is the maximum amount a lender will approve for a home loan, based on an assessment of your income, expenses, existing debts, and the lender's specific credit policies. In Australia, this assessment is governed by responsible lending obligations under the National Consumer Credit Protection Act 2009, as well as APRA's prudential standards for authorised deposit-taking institutions (ADIs).

In 2026, borrowing capacity is being compressed by a "triple-threat" of regulatory settings: the APRA 3% serviceability buffer (which requires lenders to stress-test applications at 3 percentage points above the actual interest rate), the new DTI cap limiting banks to issuing no more than 20% of new mortgages to borrowers with total debt exceeding six times their gross income, and upward revisions to HEM benchmarks. Each of these factors independently reduces what you can borrow — and together, their effect is substantial.

The HEM Benchmark: What It Is and Why It Matters

The Household Expenditure Measure (HEM) is a benchmark used by Australian lenders to estimate a borrower's living expenses when assessing home loan applications. Developed by the Melbourne Institute, the HEM represents a modest but acceptable standard of living for Australian households, based on actual expenditure data.

Lenders use the HEM as a floor for living expense assessments. If a borrower declares living expenses below the HEM, the lender will typically use the HEM figure instead. This is designed to prevent borrowers from understating their expenses to qualify for a larger loan.

Why HEM Benchmarks Have Risen in 2026

In 2026, lenders have revised their HEM benchmarks upward to reflect the sustained increase in the cost of living experienced by Australian households over the past two to three years. Higher costs for insurance, utilities, groceries, and childcare have all contributed to higher HEM figures across different household types and income levels.

The practical effect is that even if your actual living expenses have not changed, the lender's assessment of your expenses may have increased — reducing the "net" income available to service a loan and therefore reducing your maximum borrowing capacity. For some borrowers, this revision alone has reduced their borrowing capacity by tens of thousands of dollars.

Credit Card Limits: A Hidden Borrowing Capacity Killer

One of the most commonly misunderstood factors affecting borrowing capacity in Australia is the way lenders treat credit card limits. Australian lenders assess the credit limit of a credit card — not the outstanding balance — when calculating a borrower's existing debt commitments.

This means that a credit card with a $20,000 limit that carries a zero balance is treated as if the borrower has $20,000 in debt. Lenders typically assume a minimum monthly repayment of 2-3% of the credit limit, which is then deducted from the borrower's assessable income. A $20,000 credit card limit could reduce your borrowing capacity by $80,000 to $100,000 or more, depending on the lender and your income level.

Practical Steps to Address Credit Card Limits

The good news is that credit card limits are one of the most actionable factors affecting borrowing capacity. Before applying for a home loan, consider:

• Reducing credit card limits — Contact your credit card provider and request a reduction in your credit limit to the minimum you actually need. This is a simple, free step that can meaningfully improve your borrowing capacity.
• Closing unused cards — If you have credit cards you no longer use, closing them entirely removes the limit from the lender's assessment.
• Consolidating cards — If you have multiple credit cards, consolidating to a single card with a lower combined limit can simplify your financial profile and improve your borrowing capacity.

Key Considerations for Maximising Your Borrowing Capacity

Beyond credit card limits, there are several other factors that can significantly affect your borrowing capacity in 2026. A mortgage broker can help you identify and address these factors before you apply.

• HECS-HELP debt — Compulsory HECS-HELP repayments are treated as ongoing commitments by lenders, directly reducing your assessable income. The higher your income, the higher your compulsory repayment rate, and the greater the impact on borrowing capacity.
• Buy now, pay later (BNPL) commitments — Many lenders now include BNPL repayments in their expense assessments, even if the balance is small. Closing BNPL accounts before applying can help.
• Negative gearing changes — Following the May 2026 Budget, several major lenders have updated their calculators to remove projected tax benefits for established investment properties, further impacting the borrowing power of property investors.
• Lender policy differences — Different lenders apply different policies for rental income shading, overtime treatment, bonus income, and DTI appetite. A mortgage broker can identify which lenders' policies best suit your specific financial profile.
• Non-bank lenders — The APRA DTI cap applies only to APRA-regulated ADIs. Non-bank lenders, which operate under ASIC oversight, are exempt from this specific cap and may offer higher borrowing capacity for some borrowers.

Common Mistakes When Applying for a Home Loan in 2026

Many borrowers make avoidable mistakes that reduce their borrowing capacity or result in loan application declines. Being aware of these pitfalls can help you approach your application more strategically.

• Applying to multiple lenders simultaneously — Each home loan application results in a credit enquiry on your credit file. Multiple enquiries in a short period can signal financial stress to lenders and reduce your credit score, making subsequent applications harder.
• Not reviewing your credit file — Errors on your credit file can reduce your credit score and affect your borrowing capacity. Review your credit file before applying and dispute any inaccuracies.
• Underestimating living expenses — Declaring living expenses significantly below the HEM benchmark can trigger additional scrutiny from lenders and may result in a decline if the lender determines the declared expenses are not credible.
• Ignoring pre-approval shelf life — In the current rate-volatile environment, pre-approvals have a shorter effective shelf life. If an RBA rate decision occurs during your property search, refresh your pre-approval to avoid being caught by a mid-auction reassessment.
• Not considering the full cost of borrowing — Focusing solely on the interest rate without considering fees, offset account features, redraw facilities, and the lender's track record on rate changes can lead to a suboptimal loan choice.

Australian Regulatory Context

The regulatory framework governing home lending in Australia is complex and has evolved significantly in recent years. Key regulatory touchpoints include:

The Australian Prudential Regulation Authority (APRA) sets prudential standards for ADIs, including the 3% serviceability buffer and the DTI cap introduced on 1 February 2026. APRA's 2026 System Risk Outlook confirmed that the serviceability buffer will remain unchanged, despite industry advocacy for a reduction.

The Australian Securities and Investments Commission (ASIC) regulates mortgage brokers and lenders under the National Consumer Credit Protection Act 2009. Mortgage brokers are subject to a best interests duty, which requires them to act in the best interests of their clients when recommending a home loan. ASIC's Regulatory Guide 273 (RG 273) sets out how brokers should comply with this duty.

The Mortgage and Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) are the two peak industry bodies for mortgage brokers. Members of these associations are bound by codes of practice that set professional standards for broker conduct.

The Australian Financial Complaints Authority (AFCA) provides an external dispute resolution service for complaints about mortgage brokers and lenders. Borrowers who have concerns about advice or service they have received can lodge a complaint with AFCA.

Questions to Ask Your Mortgage Broker About Borrowing Capacity

When engaging a mortgage broker to help maximise your borrowing capacity, consider asking the following questions:

• Which lenders are likely to offer me the highest borrowing capacity given my specific financial profile, and why?
• How does my HECS-HELP debt affect my borrowing capacity, and are there lenders who treat it more favourably?
• Should I reduce or close any credit card limits before applying, and by how much would this improve my borrowing capacity?
• How does the APRA DTI cap affect my application, and are there non-bank lenders who might offer a better outcome?
• How will the revised HEM benchmarks affect my application, and what can I do to demonstrate my actual living expenses?
• Are you a member of the MFAA or FBAA, and how do you comply with the best interests duty?
• What is your process for managing my application to minimise credit enquiries on my credit file?

How MyMoney® Can Help

Navigating the complex borrowing capacity landscape of 2026 — with its revised HEM benchmarks, APRA DTI caps, and lender-specific credit policies — requires expert guidance from a qualified mortgage broker who understands the current market and can identify the lenders and strategies best suited to your circumstances. The MyMoney® Marketplace connects Australian borrowers with experienced mortgage brokers who specialise in maximising borrowing capacity and securing competitive home loan terms.

Whether you are a first home buyer, an investor, or looking to refinance, a mortgage broker found through MyMoney® can help you understand your borrowing capacity, identify the right lenders for your profile, and navigate the application process efficiently.

Take the first step toward your home loan goals today. Post a Brief on MyMoney® to receive proposals from qualified mortgage brokers, or Browse Mortgage Brokers in our marketplace to find the right professional for your needs.