What is the serviceability buffer in Australia?

The serviceability buffer is a 3 percentage point addition to a loan's interest rate, required by APRA's Prudential Practice Guide APG 223 (August 2022). Lenders must verify that a borrower can service monthly repayments at the actual interest rate plus 3%. For example, if the loan rate is 6.49%, lenders must test at 9.49%.

How does the serviceability test work?

Lenders calculate your monthly net income, subtract a minimum living cost benchmark (HEM), and subtract all other committed monthly expenses including existing loan repayments, credit card costs, HECS withholding, rent, school fees, and private health. The remaining surplus must cover monthly mortgage repayments at the stress-test rate. The maximum loan is the one where repayments exactly equal the surplus.

Why does the serviceability buffer exist?

APRA introduced the 3% buffer to ensure borrowers can still afford repayments if interest rates rise significantly. With a variable rate mortgage, your repayments increase when the RBA raises the cash rate. The buffer provides a cushion against rate rises of up to 3 percentage points from the date of application.

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GetReal — Methodology

Serviceability

v1.1 — updated September 2025 (HECS exclusion from DTI)

Lenders must verify that a borrower can meet monthly repayments at the actual interest rate plus a 3 percentage point buffer (APRA APG 223, August 2022). The maximum loan is the one where monthly repayments at the stress-test rate exactly consume the available monthly surplus.

Serviceability is the third and most nuanced of the three borrowing ceilings. It answers: given your income and all your committed expenses, what's the biggest loan you can actually repay — even if rates rise 3%?

The stress-test rate

APRA requires all authorised deposit-taking institutions to assess applications at a minimum buffer of 3.0 percentage points above the loan rate. GetReal applies this to its current interest rate assumption.

Stress-test rate = interest_rate + 0.03 Monthly repayment = loan × r × (1 + r)^360 ÷ ((1 + r)^360 − 1) where r = stress_test_rate ÷ 12 and 360 = 30-year term in months

Monthly surplus

Monthly surplus = take_home_pay_monthly − HEM_floor // minimum living cost benchmark − declared_living_expenses // if higher than HEM floor − existing_loan_repayments − existing_mortgage_repayments − credit_card_monthly_cost // 3% of total limit − rent // if currently renting − school_fees_monthly − private_health_monthly − hecs_monthly_repayment // estimated from income

Maximum serviceable loan

Solved iteratively via binary search: the highest loan amount where monthly repayments at the stress rate do not exceed the monthly surplus.

Worked example — single borrower, $90,000 income, metro, HECS debt

Take-home pay: $5,200/month HEM floor (metro): $2,480/month HECS repayment: $520/month (est. at $90k income) Car loan repayment: $430/month ───────────────────────────────────────────── Monthly surplus: $1,770/month Stress-test rate: 9.49% (6.49% + 3.0%) Monthly stress rate: 0.7908% Max loan: ≈ $219,000

Lender variation: Individual lenders may apply higher buffers, stricter HEM interpretations, or additional expense categories. GetReal's estimate is indicative of mainstream lender practice.

↗ Source: APRA APG 223 — Residential Mortgage Lending (August 2022)