Everything you need to know about serviceability

How Lenders Calculate Your Borrowing Power

Lenders assess your borrowing capacity by measuring your income against your expenses, then stress-testing the result at an interest rate 3.0 percentage points above the actual loan rate. That buffer, set by APRA, applies to all new borrowers and determines the maximum loan amount you can service. For oral surgeons earning through a mix of private practice income, hospital sessional work, and consulting arrangements, the calculation relies on how consistently lenders can recognise and verify each income stream.

Consider an oral surgeon earning $350,000 annually through a private practice structure, with $280,000 drawn as income and the remainder retained in the practice. A lender applying full recognition to that $280,000 will offer a substantially higher borrowing capacity than one requiring two years of tax returns and averaging income across multiple years. The difference in loan amount between those two approaches can exceed $200,000, which changes the range of properties you can target and the deposit structure required to avoid LMI.

Why Your Practice Structure Affects Loan Approval

Most oral surgeons operate through a private company or trust to manage income splitting, tax planning, and asset protection. Lenders vary in how they treat income drawn from these structures. Some recognise the full amount on your current payslip or accountant letter if you hold at least 50 per cent ownership and provide ABN registration and recent BAS statements. Others treat you as self-employed and require two years of financials, regardless of how you draw income.

In a scenario where you have recently restructured your practice or changed your income distribution, one lender may decline the application on the basis of insufficient trading history, while another approves it using current income evidence and a letter from your accountant confirming sustainability. That difference in policy is not publicly advertised and becomes evident only during the assessment process. Knowing which lenders apply flexible income treatment for oral surgeons before you lodge an application protects your credit file and shortens your timeline to settlement.

How the Serviceability Buffer Changes What You Can Borrow

Every lender must assess your capacity to service the loan at a rate 3.0 percentage points above the product rate you are applying for. If you apply for a variable rate currently sitting at 6.2 per cent, the lender tests whether you can afford repayments at 9.2 per cent. That assessment rate applies to the full loan amount over a 30-year term for principal and interest loans, or over a 25-year term for interest-only applications with a subsequent revert to principal and interest.

An oral surgeon applying for a $1,200,000 loan at a 6.2 per cent variable rate will have actual monthly repayments of approximately $7,400. The lender's serviceability assessment, however, calculates repayments at 9.2 per cent, which equates to approximately $9,800 per month. Your income and committed expenses must support that higher figure, not the actual repayment. This is why two applicants with identical incomes can receive different loan approvals depending on their existing debts, credit card limits, and declared living expenses.

What Counts as Income in a Serviceability Assessment

Lenders recognise base salary, regular overtime, allowances that appear on consecutive payslips, and distributions from a controlled private practice entity. For oral surgeons who also hold visiting medical officer contracts, income from those sessions is generally accepted if it appears on payslips for at least three consecutive months and the contract has ongoing tenure. Irregular consulting income, locum work billed through an ABN without a consistent pattern, and one-off payments are either excluded or averaged over a longer period, which reduces the amount that contributes to your borrowing capacity.

Rental income from an existing investment property is recognised at 80 per cent of the gross amount on a signed lease, though some lenders apply 70 per cent if the property is negatively geared. If you hold an offset account on your current loan, interest saved is not treated as income. Lenders do not assess the benefit of offset arrangements when calculating capacity for a new loan, even though that benefit is real in your personal cash flow.

How Existing Debts and Credit Limits Reduce Your Capacity

Every ongoing financial commitment reduces the amount you can borrow. Lenders include the actual repayment on your existing home loan, the minimum monthly repayment on any investment loan, car loan repayments, personal loan repayments, and the credit limit on every credit card you hold, even if the balance is nil. A credit card with a $30,000 limit is treated as though you are paying approximately $900 per month, regardless of whether you use the card.

For oral surgeons holding multiple credit cards, a practice equipment finance agreement, and an existing investment property with interest-only repayments, the combined monthly commitment can exceed $6,000 before a single dollar is allocated to the new loan. Closing unused cards and refinancing short-term equipment debt into longer-term structures can release several hundred thousand dollars in borrowing capacity without changing your income. That adjustment is most effective when completed at least one statement cycle before you apply, so the closed accounts no longer appear on your credit file.

Why Some Lenders Offer Higher Capacity Than Others

Each lender applies its own expense benchmarks when calculating your remaining income after fixed commitments. Some use the Household Expenditure Measure published by the Australian Bureau of Statistics, adjusted for household size and postcode. Others apply a flat minimum that does not adjust for your actual spending. If you declare living expenses below the lender's benchmark, they override your figure and apply the higher amount, which reduces your assessed surplus and therefore your borrowing capacity.

An oral surgeon with no dependents living in an inner-city apartment may have genuine monthly expenses of $3,500, but one lender applies a $5,200 benchmark while another applies $4,100. That $1,100 difference, when multiplied over the life of the loan and tested at the buffer rate, can reduce borrowing capacity by $150,000 or more. Lenders that allow you to evidence lower expenses through bank statements and committed outgoings, rather than applying a blanket floor, will generally return a higher capacity for applicants with controlled spending.

Adjustments You Can Make Before You Apply

Reducing your credit card limits, consolidating short-term debts, and closing unused credit facilities all improve your serviceability position. A reduction in total credit limits from $80,000 to $20,000 can increase your borrowing capacity by $200,000 or more, depending on your income level and other commitments. For oral surgeons holding HECS-HELP debt, repayments are calculated at the compulsory rate applied to your taxable income, and the outstanding balance itself does not reduce capacity unless it affects your credit score.

If you are planning to purchase within six months, complete these adjustments at least 60 days in advance so that updated credit reporting reflects the changes. Lenders pull a full credit report during the application process, and any recently closed account may still appear if the closure has not yet been reported to the credit bureau. Timing these changes in sequence with your loan pre-approval ensures the assessment reflects your optimal position.

When Serviceability Is Tight and How to Work Around It

If your income is sufficient but your borrowing capacity is constrained by existing debts or expense benchmarks, restructuring those commitments or adjusting your loan structure can bridge the gap. Extending the loan term from 25 to 30 years reduces the assessed monthly repayment and increases capacity, though it also increases the total interest paid over the life of the loan. Choosing a split loan structure with a portion on interest-only terms for the first five years reduces the serviceability impact during the assessment period, provided the lender tests the interest-only portion on a revert-to-principal-and-interest basis over the remaining term.

For oral surgeons purchasing a property that sits just outside your approved capacity, adding a co-applicant with stable income, restructuring practice distributions to increase your declared income, or applying with a lender that offers higher recognition of your specific income type can each shift the outcome from conditional decline to full approval. These are not workarounds that compromise the integrity of the assessment. They are legitimate structural adjustments that align your application with the policies of lenders best suited to your circumstances.

Understanding how lenders assess your borrowing power, and which adjustments deliver the most material improvement, gives you control over the outcome before you submit your first application. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions