What Is the APRA Serviceability Buffer?
The Australian Prudential Regulation Authority (APRA) requires all regulated lenders to assess home loan applications at the borrower's actual interest rate plus 3 percentage points. This is called the "serviceability buffer." Its purpose is to ensure borrowers can still afford their mortgage if interest rates rise. As of May 2026, with the RBA cash rate at 4.35% and typical variable rates at 6.25-6.5%, lenders are assessing borrowers at approximately 9.25-9.5% p.a. — even though the actual rate is 2.75-3.25 percentage points lower.
How the Buffer Reduces Your Borrowing Power
| Actual Loan Rate | Assessment Rate (+ 3%) | Borrowing Power on $120k Income | Reduction vs No Buffer |
|---|---|---|---|
| 6.25% | 9.25% | ~$580,000 | -$210,000 |
| 6.48% | 9.48% | ~$565,000 | -$220,000 |
| 5.89% (best rate) | 8.89% | ~$610,000 | -$195,000 |
| No buffer (hypothetical) | ~$790,000 | Buffer costs $195-220k | |
Estimates based on $120,000 income, no dependants, minimal debts. Actual figures vary by lender.
Why APRA Introduced the Buffer
APRA tightened the buffer to 3% in October 2021 after concerns about rapidly rising household debt and property prices during the COVID-19 low-rate period. The buffer is designed to prevent borrowers from taking on loans they could not service if rates rose to historical norms. Given that the RBA raised rates 13 times from 2022-2026, the buffer proved its value — many borrowers who took on maximum debt in 2021 are now under financial stress despite the buffer.
Can You Get Around the Buffer?
No — APRA's buffer applies to all regulated Australian lenders (banks, credit unions, most building societies). Unregulated lenders (some private lenders) are not subject to APRA rules but typically charge much higher rates. The most effective strategies to improve your position within the buffer constraints are: choose the lowest available interest rate (lower rate + 3% = lower assessment rate), reduce existing debts, close unnecessary credit cards, and increase your income. Each 0.5% reduction in your actual rate increases borrowing power by approximately $15,000-25,000.
Frequently Asked Questions
Will APRA reduce the serviceability buffer in 2026?
As of May 2026, APRA has not announced any reduction to the 3% buffer. There has been industry advocacy for a review given that rates have risen significantly since the buffer was tightened in 2021. Any change would be announced by APRA separately from RBA decisions.
Does the buffer apply to refinancing?
Yes, but with an exception. APRA allows lenders to apply an exemption for "non-material increases" in credit — essentially, refinancing to a lower rate with the same lender. The buffer still applies for most refinancing scenarios, particularly where the loan amount increases or a new lender is involved.