The appeal of the 30% rule is obvious. One number feels much easier to work with than a whole household budget. The problem is that property decisions rarely fit neatly into one number.
The 30% rule is a traditional rule of thumb that says housing costs should stay below around 30% of gross household income. It can be a useful starting point, but it isn't a hard affordability limit. Two households on the same income can have very different levels of financial breathing room depending on their debts, expenses, savings and lifestyle.
The better question isn't simply "Am I below 30%?" It's "After my housing costs and other commitments, do I still have enough room to manage everyday spending, unexpected costs and savings?"
What the 30% rule actually tells you
The 30% threshold is often used as a rule of thumb for housing affordability. Spending more than 30% does not automatically mean a household is in mortgage stress, just as spending less than 30% does not guarantee that a household is comfortable.
The reason is that a percentage only describes the relationship between two numbers. It says nothing about what sits underneath them: how large the income is, what the household is already committed to, what it needs to spend each month, or what it has managed to set aside.
What "housing costs" covers
The traditional rule is generally discussed in terms of housing costs rather than the mortgage repayment on its own, and the two aren't interchangeable. For an owner occupier, housing costs can include mortgage repayments, council rates or similar property charges, insurance, strata or body corporate fees where they apply, and maintenance and repairs. Not every buyer has every one of these, and this list isn't meant to be complete: budget for all the costs sets out the full picture.
If you are comparing 30% against your repayment alone, it's worth being clear that is what you're doing. It's a simplified version of the rule, not the same test.
Gross income or take-home pay
The traditional 30% rule is based on gross household income, before tax. That makes it useful for a simple comparison, but your actual take-home income is what ultimately pays the bills.
For a realistic affordability check, look at what comes into the household after tax and what actually goes out each month.
Why the 30% rule doesn't work for everyone
The same percentage means different things in different households. What sits behind the number includes:
- Income and household size, including dependants.
- Existing debts and other financial commitments.
- Major recurring expenses, such as childcare, education, health or transport costs.
- Savings, and the buffer the household keeps for unexpected costs.
- Interest rates and loan structure, which change what a repayment looks like over time.
A household with a higher income and relatively low fixed costs may have more room at a higher percentage, while a household with significant debts or other commitments may feel financially stretched at a lower percentage.
A percentage can be a useful starting point, but it can't see the rest of your household budget.
The same percentage, two different households
Two households both earn $120,000 before tax. One has substantial childcare and other debt repayments; the other has fewer fixed commitments. A housing cost equal to the same percentage of their gross income could leave them with very different amounts of money available each month.
The point isn't that one of them has landed on the right percentage. It's that the ratio on its own doesn't tell you which household has room to move.
The more useful test: what's left
After your mortgage and other housing costs, fixed bills and realistic monthly spending, how much room is left? Can you still save? Could you absorb an unexpected expense? What happens if interest rates, income or household costs change? Those questions tell you more about your financial breathing room than a single percentage.
If the answers point to the numbers not working, that's a budget question rather than a percentage question. What to do if you can't find anything in your budget and sticking to your budget cover the options from there, and budget for all the costs sets out what a purchase costs beyond the price.
What lenders actually do
Lenders assess borrowing capacity using their own lending criteria, including income, expenses, existing commitments and how the loan performs under their assessment assumptions. Their assessment is not based on a simple 30% rule.
A lender telling you that you can borrow a particular amount doesn't mean that amount is automatically a comfortable household budget. The two answer different questions, and borrowing capacity vs purchase price works through that distinction in full.
Treat pre-approval as an indication of what the lender may be prepared to lend, not as a recommendation for how much you should spend.
Should I try to keep my mortgage below 30% of my income?
The 30% figure can be a useful rule of thumb, but it shouldn't be treated as a target or a hard limit. Your comfortable level of housing costs depends on your income, other commitments, spending, savings and the financial buffer you want to maintain.
The 30% rule can tell you when to look more closely. It can't tell you whether a particular mortgage is right for your household.
Where this fits with buying
Good property decisions start with understanding the numbers, not simply finding out how much a lender will approve. Use the 30% rule as a prompt to check the numbers, not permission to spend up to a particular percentage. The useful question is whether the purchase still works when you look at the whole picture, not just the percentage attached to the mortgage.
What you can afford to repay is a conversation for you, your lender or broker, and where relevant a qualified financial professional. Where it meets us is at contract stage: signing a contract of sale commits you to a purchase price, so it is worth having a clear view of your whole position before you get there. We review the contract before you sign and handle the conveyancing once you do.
