How NZ banks assess your home loan application

A New Zealand bank assesses a home loan by working out your monthly surplus (take-home pay plus part of any rent, less living costs and other debt repayments) and asking what loan that surplus could repay at its test rate, usually over 30 years. Test rates confirmed in July 2026 run from 6.85% to 7.10%. The bank then checks the Reserve Bank's debt-to-income and deposit rules, and looks at your credit history, statements and the property. In our worked example a couple earning $130,000 with a $400 a month car loan has a surplus of $4,711.26, which supports about $712,448 at the 6.94% average test rate. Banks decide; this is general information, not financial advice.

The assessment in one picture

Every bank has its own policy, but the shape of the assessment is the same across ANZ, ASB, BNZ, Kiwibank and Westpac:

1. Income: what you earn, and how much of it the bank will count.
2. Living costs: what you spend, checked against the bank's own benchmarks.
3. Other commitments: repayments on car loans, personal loans, buy now pay later, cards and any other home loans.
4. Serviceability: whether the surplus left over could repay the new loan at the bank's test rate.
5. The Reserve Bank rules: the debt-to-income (DTI) ratio and the loan-to-value ratio (LVR, your deposit).
6. Character and security: your credit history and conduct, and the property itself, often with a valuation.

Steps 1 to 4 produce the serviceability limit. Step 5 produces two more limits. Your borrowing is roughly the lowest of the three, as our guide to how much you can borrow explains with three worked examples.

Step 1: income, and how much of it counts

Serviceability starts from take-home pay: what reaches your account after PAYE, the ACC levy, KiwiSaver and any student loan deductions. The DTI test, by contrast, uses gross income before tax. Both matter, so it helps to know both figures.

Not every dollar counts in full. What the research we rely on found:

• Salary and wages on a permanent contract are the easiest income to count.
• Overtime, bonuses and rental income are often discounted. One source says by 20% to 30%; Sorted says some lenders count 70% to 80% of boarders' or flatmates' rent and others count none. These are secondary sources, so we treat them as a guide. Our calculator counts 75% of rent by default and lets you change it.
• Self-employed income usually needs a longer track record. Our self-employed guide covers it.

What a boarder is worth: in our example below, a boarder paying $200 a week adds $10,400 a year, of which 75% ($7,800) is counted. That lifts the surplus by $650 a month and the serviceability limit from $712,448 to $810,742, about $98,000 more. For investors, the rent from the property being bought counts the same way; see our rental income guide.

Step 2: living costs, yours or the bank's

You tell the bank what you spend each month on food, power, transport, insurance, childcare, subscriptions and the rest (not rent, which stops when you buy). The bank then compares your figure with its own internal benchmarks for a household like yours and uses the higher. BNZ's borrowing calculator says it "may have to adjust the information you've given us after comparing with our internal benchmarks". No New Zealand bank we read publishes its benchmark figures, and we found no published national measure.

Because the benchmarks are not public, our calculator uses a stated floor instead: $1,600 a month for the first adult, $800 for each other adult and $500 for each dependant. If your figure is lower, we use the floor. This is our own assumption, labelled on every result, not a bank figure. A bank's benchmark for your household could be higher or lower.

Banks usually read recent bank statements, so the spending they see should match what you tell them. Spending you can stop (takeaways, subscriptions) may be treated differently from spending you cannot, but each bank decides how.

Step 3: other debts and card limits

Every regular commitment comes off your surplus: car loans, personal loans, hire purchase, student loan deductions if not already taken from pay, and repayments on any other property. The effect is large. At the 6.94% average test rate over 30 years, each $100 a month of repayments takes about $15,122 off the serviceability limit, so a $400 car loan repayment costs about $60,489 of borrowing.

Credit cards and overdrafts are different. Their full limits count as debt for the DTI ratio, even with a zero balance (Kiwibank sets this out). Whether a bank also allows for a card repayment in serviceability, and how, is its own policy; we have not found one published, so our calculator counts card limits in the DTI limit and lets you enter any card repayments yourself. Our guide to credit cards and borrowing goes further.

Worked example: a couple on $130,000

Two buyers each earn $65,000 before tax. With 2026/27 PAYE, the ACC levy and KiwiSaver at 3.5% (no student loan), each takes home $4,155.63 a month. They spend $3,200 a month, have a car loan of $15,000 with repayments of $400 a month, and keep $10,000 of credit card limits.

Then the Reserve Bank checks. For DTI, 6 times $130,000 is $780,000 of total debt; less the $15,000 car loan and $10,000 of card limits leaves room for a new loan of up to $755,000. Serviceability, at $712,448, is lower, so it binds. For the deposit, a 20% deposit supports a loan of 4 times the deposit, so they would need at least $178,112 to borrow the full $712,448 at an 80% LVR.

How each change moves the serviceability limit, all else equal:

Across the five banks' test rates the same surplus of $4,711.26 supports different amounts, because 6.85% and 7.10% are not the same test. Our test rates page shows the figure at each bank.

What else banks look at

• Credit history. Banks check your credit report and your conduct on existing accounts. Missed payments and frequent short-term borrowing can lead to a lower offer or a decline.
• A surplus after everything. Some lenders want money left over even after the test. Sorted gives "$750 to $1,000" a month as an example for borrowing at 95% (one undated source, so treat it as indicative).
• Your deposit's source. Savings built up over time show you can manage repayments. Gifts from family are often treated differently; see our guide to buying with family.
• The property. The bank lends against the home, so it may want a registered valuation, especially above 80% LVR or for a private sale (Sorted). New builds have their own rules: see new build lending.
• Responsible lending law. Banks must make reasonable inquiries into affordability under the Credit Contracts and Consumer Finance Act. The Financial Markets Authority took over as regulator from 1 July 2026 and lists changes to the affordability rules; we have not read the detail of those changes, so we do not describe them here.

How to prepare

1. Work out your real monthly spending from three months of statements, and run it through our calculator.
2. Pay down or close debts you do not need, and lower card limits you do not use. Both help DTI; repayments you remove help serviceability.
3. Gather payslips, statements, ID and evidence of your deposit.
4. Get a pre-approval before you bid, from a bank or through a mortgage adviser.

Our figures are estimates built on published rules, published test rates (test rates confirmed July 2026) and our own living-cost floor. A bank's own assessment is the only one that counts. Banks decide; this is general information, not financial advice.

Questions people ask

Do banks use my living costs or their own?

Usually the higher of the two. Banks compare what you tell them with internal benchmarks they do not publish. Our calculator uses a stated floor of $1,600 a month for the first adult, $800 for each other adult and $500 for each dependant, which is our own assumption.

How much does a car loan reduce what I can borrow?

At the July 2026 average test rate of 6.94% over 30 years, each $100 a month of repayments takes about $15,122 off the serviceability limit. A $400 a month car loan costs about $60,489 of borrowing, and its balance also counts towards your DTI ratio.

Will the bank count my boarder's rent?

Some lenders count 70% to 80% of boarders' or flatmates' rent and others count none (Sorted). We count 75% by default. At that share a $200 a week boarder adds about $98,000 of borrowing in our example.

Is the bank's offer the same as what I can afford?

No. The test rate builds in a margin, but the bank's maximum is not a budget. Check that repayments, insurance, rates and maintenance fit what you want to spend.