How much can I really borrow in NZ?

The 4-to-5x rule, and why it's only a starting point

Most NZ mortgage rules of thumb start with "four to five times your gross household income". For a household earning $150,000 gross combined, that gives a ballpark borrowing range of $600,000 to $750,000. Add a deposit on top and you have a rough purchase budget.

The rule is useful as a sanity check. It is not how the bank actually calculates the number. The bank's calculation runs through three layers and the rule of thumb only captures the first.

Layer one: gross income, adjusted

The bank takes your gross income and adjusts it. PAYE income gets a roughly 100% weighting if it's stable and ongoing. Contract income often gets 80% to 100% depending on the bank, the industry and the length of contract history. Bonuses and commissions are typically averaged over two years and weighted at 50% to 80%. Rental income from existing investment properties is usually weighted at 75% or 80% to allow for vacancies and costs. Self-employed income runs off two years of financial statements and adjusts back for owner-paid wages, non-cash items and one-off costs.

By the time your income hits the calculator, it can be 10% to 20% lower than your tax return suggests. This is the first thing online calculators miss.

Layer two: servicing test rate

This is the part most homebuyers don't know about. When the bank works out whether you can afford the loan, they don't use the rate they're going to charge you. They use a stress rate that is typically two to three percentage points higher.

If carded rates are around 6%, the bank's servicing test rate is typically around 9%. That means the loan repayment they're calculating against your income is much higher than your actual repayment will be. The logic is to make sure you can still afford the loan if rates climb again over the next few years, which is the same logic the Responsible Lending Code asks them to apply (Commerce Commission Responsible Lending Code).

The servicing test rate is the single biggest lever in how much you can borrow. A 1% change in the test rate can move borrowing capacity by 8% to 10%. The test rate is set by each bank individually and moves monthly. We track it.

Layer three: living costs and debt commitments

The bank subtracts your living costs and your existing debt repayments from your adjusted income before working out how much loan that supports. Three things go in here that surprise people:

1. The living-cost figure the bank uses is not your actual living cost. They use a UCCC (Uniform Customer Credit Code) figure based on household size, location and dependents. For a couple with no children in Auckland or Tauranga, that figure can be $4,500 to $5,500 a month. Even if your real spending is $3,500, the bank uses the higher number. This is mandated by the Responsible Lending Code, not optional.
2. Credit card limits count as debt even if your balance is zero. A $10,000 credit card limit reduces your borrowing capacity by roughly $40,000 to $60,000. Same for buy-now-pay-later facilities. The presence of the facility is the issue, not the balance.
3. Student loan repayments and HECS-equivalent debts reduce capacity. A 12% IRD student loan repayment is treated as a non-negotiable commitment, and it directly reduces what the bank will lend.

The DTI overlay (since 2024)

Since 2024, the Reserve Bank has overlaid debt-to-income (DTI) restrictions on new mortgage lending (RBNZ DTI framework). The current settings cap new owner-occupier lending at six times gross household income, and investor lending at seven times. Banks have flexibility for a portion of their book to exceed these caps, but the practical effect is that most owner-occupier borrowing is now constrained by either DTI or servicing, whichever bites first.

For a $150,000 gross household, the DTI cap pulls borrowing capacity to around $900,000 before servicing is even considered. For higher-income households that previously used to stretch to 7x or 8x income on a single bank, the DTI cap is now the binding constraint.

What changes the number in your favour

• Reduce credit card limits. Closing a $20,000 card you don't need can free up $80,000 of capacity.
• Pay down or close personal loans. A $400/month personal loan repayment is the difference between yes and no on a lot of applications.
• Present income properly. If you're self-employed and your two-year average looks weaker than the current year, the way the application is structured changes which year carries the weight.
• Pick the bank whose servicing test rate is currently lower. The four major banks publish marginally different test rates and they move monthly. A broker tracks this.
• Add a guarantor where appropriate. Family-guaranteed lending is back in fashion and works at most banks for first-home buyers with strong-income parents.

What the broker actually does on this

We don't just ask the bank. We ask all six banks at the same time, presented as a clean package with your income normalised and your living costs presented honestly. The same client at four different banks routinely returns four different borrowing capacities, sometimes spread over a $200,000 range. The right answer is not "the highest one"; it's "the one that says yes at a rate you can live with for a structure that fits".

A 15-minute conversation gets us 80% of the way to a real number. (Sorted.org.nz also publishes a useful general affordability guide here: Sorted mortgage calculator. That gives you an indication; we give you a lender-specific answer.)