Why APRA’s stubborn serviceability buffer means you need a smarter investing strategy

In a world where property headlines swing from boom to bust, and your feed is filled with “five properties in five years” stories, it’s tempting to think borrowing is about how much you can squeeze out of the bank.

But seasoned investors know better. It’s not about your borrowing limit – it’s about your borrowing strategy. Property investing isn’t just about bricks and mortar.

It’s a game of finance. And if you get the lending part wrong, even the best asset won’t save your portfolio. Time and again, we’ve seen people get stuck not because of poor property choices, but because their lending structure couldn’t support the next move. So let’s get clear on what really matters when it comes to borrowing.

Borrowing power ≠ purchase price

Many Australians believe their pre-approval is a green light to spend every dollar. But borrowing power is just one piece of the puzzle. Yes, your income, expenses, liabilities, and credit score determine what the bank might lend you. But that doesn’t reflect what you can safely afford, especially when rates rise, tenants vacate, or life throws a curveball. That’s why we teach a simple mindset shift: just because you can borrow it doesn’t mean you should. Instead, ask yourself:

• Can I still service this loan if interest rates increase by 2 per cent?
• What’s my buffer for unexpected costs or vacancies?
• Will this debt move me closer to financial peace or further from it?

What banks really look for

While many borrowers fixate on income, banks focus on surplus cash flow. This is the real currency of lending. Lenders want to see:

• A steady income.
• A track record of disciplined spending.
• Low existing liabilities.
• Strong buffers after all expenses (including future interest rate rises).

Most banks now stress-test your loan at 3 per cent above the actual rate. So even if you’re paying 6 per cent, they assess you as if it were 9 per cent. That’s why reducing discretionary spending, clearing unused credit cards, and showing savings discipline in the lead-up to your application can meaningfully improve your borrowing capacity. Your behaviour tells the story, not just your payslip.

Interest rates aren’t the only risk
Too many investors obsess over rates and ignore structure. But structure is what protects your wealth when conditions change. Sophisticated borrowers reverse-engineer their lending strategy. They ask:

• What will my income and expenses look like in future?
• Will this asset limit or expand my options in five to 10 years?
• Is my loan structured to support growth, cash flow, or both?

This kind of thinking is what separates those who scale from those who stall after one or two properties.

‘How much can I borrow?’ is the wrong question

The better question is: how much can I borrow safely, in a way that supports my goals and preserves my flexibility? In other words, borrowing isn’t about pushing to the limit – it’s about structuring strategically. That might look like:

• Structuring loans to free up future cash flow.
• Using offset accounts for flexibility.
• Avoiding cross-collateralisation to keep options open.
• Working with an investment-savvy mortgage broker to align finance with your long-term goals.

A strong financial strategy is one that still works even if things don’t go as planned – that’s what real wealth planning looks like.

Why the game has changed

Borrowing has become harder, not just because of rising living costs, but because lending standards have tightened. Post-royal commission reforms, living expense benchmarks, and serviceability buffers mean even high-income borrowers may feel capped. And despite falling inflation and talk of rate cuts, APRA recently confirmed it will keep the mortgage serviceability buffer at 3 per cent. The regulator cited high household debt and the risk of overleveraging as interest rates decline.

They also flagged rising credit growth and the potential for riskier lending. This includes high debt-to-income loans and speculative investor activity. Further macroprudential tools may be introduced. So while rates may fall, borrowing won’t necessarily get easier. If anything, your strategy needs to be even sharper.

Focus on what you can control

You can’t control bank policy or interest rates, but you can control how borrow-ready you are. Here’s how:

1. Track your spending – If you don’t know where your money goes, neither will your lender.
2. Build a buffer – Aim for at least six to eight months of expenses in a savings or offset account.
3. Reduce your unproductive debts – Even unused credit cards reduce borrowing power. Cancel them.
4. Avoid Afterpay and buy now, pay later – A frequent use of these arrangements can signal poor financial habits to lenders. Especially if you don’t pay on time!
5. Get expert advice early – A quality mortgage broker can model different strategies and increase your loan success odds dramatically.

Borrowing isn’t about stretching to your limit. It’s about scaling safely so you can build wealth, not anxiety. Yes, the rules are tighter. Yes, lending is more complex. But that just means your strategy needs to be sharper. And when you align your borrowing with a bigger goal, not just “getting the deal done”, you’re far more likely to end up where you actually want to be: Living a life by design, not by default.

Bryce Holdaway and Ben Kingsley are co-hosts of The Property Couch podcast.