What is the APRA serviceability buffer?

The Australian Prudential Regulation Authority (APRA) requires all mortgage lenders to test borrowers' ability to service a loan at a rate higher than the actual contracted rate. The buffer protects against rate rises during the loan term, borrowers approved at the actual rate alone would be vulnerable to default if rates rose.

The current buffer (in effect since October 2021) is the actual loan rate + 3.0 percentage points. So a loan offered at 6.5% is tested at 9.5%. APRA reviews the buffer annually; expect it to stay at 3.0% as long as rate volatility persists. Some lenders apply slightly higher in-house buffers (3.25-3.5%).

Practical effect: your maximum borrowing capacity is materially lower than what your contracted-rate cashflow could service. Most online 'how much can I borrow' calculators ignore the buffer and overstate capacity by 15-25%. Our buying-power calculator applies the APRA buffer plus a 30% debt-to-income guardrail, closer to what banks actually approve.

Buffer doesn't apply uniformly: some refinances of existing loans get assessed at a tighter buffer (down to +1.0% in some cases) under APRA's prudential carve-out for genuine refinance-only transactions. New borrowing always gets the full +3.0% buffer.