Your number comes from income minus spending, stress-tested
Banks do not lend on a flat "times your salary" formula. They run an affordability test: start with your household's gross income, take off tax and the ACC earners' levy to get net income, then deduct an assumed level of living costs and your existing debt repayments. What is left (your monthly surplus) is what a mortgage repayment has to fit inside.
Then the catch: they test that affordability at a rate higher than the one you are offered, so your repayment is affordable even if interest rates rise while you hold the loan. This stress-test rate (around 8.5% in 2026, but it moves with the market) decides how big a loan your surplus supports, and it is often the reason the number feels lower than you hoped.
For one borrower earning $80,000 with no partner and $250/month of existing debt, an $1,800 monthly living cost and an 8.5% stress test over 30 years, the affordability test lands near $400,000. With no sensible trick that changes much, the lever is income, the surplus, or the stress rate, not a better guess.
Run your own numbers through our borrowing power calculator: it applies the current 2026/27 PAYE and ACC rates to your income and shows exactly which limit is binding.
The debt-to-income cap: 6× is the practical ceiling
Since July 2024, a second, simpler rule also applies: the Reserve Bank's debt-to-income (DTI) restriction. It caps your total debt against your income:
- Owner-occupiers: debt above 6 times gross income is "high-DTI", and banks can only write 20% of their new lending above that line. In practice, 6× is the effective ceiling for most first buyers.
- Investors: the threshold is 7 times income, also with a 20% speed limit.
DTI counts all your debt (the new mortgage, any existing mortgages, car loans, personal loans, student loans and credit card limits) divided by gross annual household income. Rent does not count. So if two of you earn $100,000 combined, total debt of $600,000 is roughly where the line sits for you as owners.
DTI limits the loan against income. LVR limits it against the property value. Both apply at once, and the one that cuts first decides your number: which one is the tightest for you shows up right in the calculator.
Loan-to-value: the deposit rule that runs alongside
The loan-to-value ratio (LVR) is the other main macro-prudential rule. It ties how much you can borrow to the value of the property you are buying, which is really a rule about your deposit:
- 80% LVR (20% deposit) is the comfortable line for most owner-occupiers. Above it you are into "high-LVR" territory and banks can only do so much of it.
- Above-80% LVR is limited to a share of each bank's new lending, and those borrowers usually pay a low-equity margin on top of their rate.
- Kāinga Ora's First Home Loan is exempt from both the LVR and DTI speed limits and lets eligible buyers in with a much smaller deposit.
So two people with identical incomes can borrow very different amounts if one has a 20% deposit and the other is scraping to 5%. The deposit constraint bites the second borrower harder.
Exemptions and the fine print
Not everyone hits the same wall. Lending that is exempt from part or all of the macro-prudential rules includes refinancing an existing owner-occupied loan (no new borrowing), loan portability (moving the same debt to a new home), and bridging finance from the DTI limit. First Home Loan borrowers sit outside both speed limits. But exemption for one rule does not mean exemption from the affordability test. Banks always run that underneath.
Two more honest limits: lenders apply their own serviceability criteria and credit checks on top of the Reserve Bank rules, and they often exclude or discount irregular income like bonuses or overtime when deciding what counts as "gross annual income". The number on a home loan approval is theirs to set, within these rails.