If you have spent an evening putting your income into a bank's online calculator, you have probably come away either quietly excited or quietly gutted. Either way, there is a good chance the number you got is wrong.
That is not because the calculators are badly built. It is because the question they are answering is far simpler than the one the bank actually asks when it looks at your application. So let’s walk you through what is really going on, because once you understand it, you can stop guessing.
There isn't one number
Three separate tests decide how much you can borrow, and they are run independently of each other.
The first is affordability, or serviceability. Can you comfortably make the repayments, on the bank's assessment rather than your own?
The second is a debt to income limit. Since July 2024 the Reserve Bank has restricted how much lending banks can do above six times a borrower's gross annual income for owner-occupiers. It is worth knowing that this is a limit on the bank, not a legal ban on you. Banks are allowed to write a portion of their lending above that level, so a ratio slightly over six is not an automatic no, but it does mean you are competing for limited space.
The third is your deposit, which sets how much of the property's value the bank will lend against.
Here is the part people miss. Your borrowing figure is set by whichever of those three is tightest. You can sail through the affordability test and still be capped by the debt to income ratio, or have plenty of income and be held back by the deposit. Improving the one that was never your problem will not move your number.
What the affordability test actually does
Banks do not test whether you can afford the repayments at today's interest rate. They test whether you could afford them if rates were meaningfully higher, usually somewhere around two percent above the current two year fixed rate as a starting point.
That feels harsh when you are staring at the gap between the test rate and what you know you could manage. But the logic does make sense. You are signing up for thirty years and fixing for one to five, so at some point you will almost certainly be repaying at a rate that is not today's rate. The test is there so that a rate rise is an adjustment rather than a crisis.
One useful consequence: because the test rate moves with market rates, your borrowing capacity moves too, even if nothing about you has changed.
The things that quietly limit your lending capacity
This is where most of the surprises live.
Credit cards and buy now pay later count against you based on the limit, not the balance. A card with a $10,000 limit that you clear every month and a card with a $10,000 limit that is maxed out are treated similarly, because the bank has to assume you could go out the day after you buy your house and max that card out. Reducing an unused limit, or closing a card you do not need, is one of the cheapest ways to free up capacity.
Car finance and personal loans reduce it too, and typically more than people expect relative to the balance owing, because the repayments are compressed into a short term.
Student loan repayments come off your assessable income. This is not a reason to rush a lump sum repayment, but it explains why two people on identical salaries can get different answers. As student loans are generally interest free (and the only debt that disappears if you pass away) generally they are fine to leave in place but occasionally we suggest repaying them if you have the capacity as it can free up 12% of your income for servicing a home loan.
Your KiwiSaver contribution rate matters as well, because contributions reduce the income the bank assesses. On one application we worked on, the difference between a higher contribution rate and the standard one moved the borrowing amount by over $10,000.
A caveat on that last one, and please take it seriously. Dropping your KiwiSaver contributions to stretch your borrowing is not automatically a good trade. You are potentially giving up employer contributions and long term growth to buy a slightly bigger house today, and for some people that is worth it while for others it clearly is not. It is a decision to make deliberately, with the whole picture in front of you, not a lever to pull because someone on the internet mentioned it.
Dependants matter too, since the bank allows a living cost figure per child.
Why the online calculators mislead
Bank calculators generally ask for your income, maybe your debts, and give you a number. They often do not know your KiwiSaver rate, your credit card limits, how your overtime or bonus is structured, whether your income is PAYE or self-employed, or how that particular bank treats any of it.
They also cannot tell you the thing that matters most, which is that banks reach different answers on identical information. Their assessment of living costs differs, how they shade non-standard income differs, and their appetite changes month to month. It is completely normal for two banks to land more than $100,000 apart on the same application, which is a big part of why working with a mortgage adviser across several banks is worth the time.
Where to start
Come to the conversation with your income details, a list of every debt and credit limit you have, your KiwiSaver balance and contribution rate, and a rough idea of your living costs. It takes about half an hour to go through, and you walk out with a real figure across multiple banks rather than a guess.
If your deposit is the thing holding you up, that is a separate conversation and there are more options than most people realise, including the Kāinga Ora First Home Loan and the different treatment new builds can get. Worth asking about rather than assuming you are years away.
Ready to find out where you stand?
Get in touch with Greg today or book a call directly in his calendar below to get a clear, personalised assessment across multiple banks.
