Calculating your borrowing power
How much a bank will lend you depends on several factors. Understanding these helps you set realistic expectations and prepare a stronger application.
Key factors banks consider
1. Income
Banks look at your gross income — salary, wages, rental income, self-employment income, bonuses, and commissions. For variable income, most banks average the last 1–2 years. Joint applicants combine their incomes.
2. Existing debts and commitments
All existing debts reduce your borrowing power — credit card limits (even unused), personal loans, car finance, student loans, and buy-now-pay-later services.
3. Living expenses
Banks assess your actual living costs or use benchmark figures (whichever is higher). A household with children will have higher assessed expenses than a single person.
4. Debt-to-income ratio (DTI)
The RBNZ has introduced DTI restrictions. Most owner-occupiers are limited to borrowing 6 times their gross annual income. For investors, the limit is typically 7 times. So if your household earns $120,000 per year, your maximum mortgage is approximately $720,000.
5. Interest rate buffer
Banks don't test affordability at the actual rate — they use a test rate typically 1–2% higher than the current rate. This ensures you can still afford repayments if rates increase.
Rough borrowing estimates
| Household Income | Approx. Maximum Loan (6x DTI) | Monthly Repayment (est.) |
|---|---|---|
| $80,000 | $480,000 | $2,600–$3,100 |
| $100,000 | $600,000 | $3,200–$3,800 |
| $120,000 | $720,000 | $3,900–$4,600 |
| $150,000 | $900,000 | $4,800–$5,700 |
These are rough guides only. Your actual maximum depends on your full financial picture. Use the mortgage calculator to get a detailed estimate.
How to increase your borrowing power
- Pay off debts — clear credit cards and personal loans
- Reduce credit limits — cancel unused credit cards
- Increase income — a pay rise or second income makes a big difference
- Save a larger deposit — borrowing less relative to the property value helps
- Reduce living expenses — banks look at 3 months of bank statements
Frequently asked questions
How is my borrowing power calculated by NZ lenders?
Lenders use your income, existing debts, and a test rate (typically 2.5% above your current rate offer) to calculate borrowing power. They typically allow you to borrow 4–5 times your annual income, subject to passing the stress test at the higher rate.
What is a debt-to-income (DTI) ratio and what's the maximum in New Zealand?
Your DTI ratio is the percentage of your gross income consumed by all debts (mortgage, car loans, student loans, credit cards). Most lenders prefer DTI below 80%, though some accept up to 90%. The lower your DTI, the more mortgage you can borrow.
What is the mortgage serviceability test rate?
The test rate (or stress test) is a higher assumed interest rate—typically 2.5% above your offer—used to verify you can still afford repayments if rates rise. If you can't service at the test rate, you won't get approved for that loan amount, even if current rates are lower.
Will self-employment income or irregular income affect my borrowing power?
Yes. Self-employed and gig workers must usually provide 2 years of tax returns showing consistent income. Lenders may average or discount variable income, reducing your approved borrowing amount. Have all documentation ready and be prepared for a longer assessment.
How can I increase my borrowing power before applying?
Pay down high-interest debts (credit cards, car loans) to lower your DTI ratio, increase your deposit to reduce the loan amount needed, or improve your income with a promotion or additional earner. Our calculator helps you explore different scenarios.
Find the right mortgage for your budget
Compare current rates from all NZ lenders and see which home loan fits your borrowing power.