In a world of skyrocketing property prices and ever-changing lending standards, Australians are looking for simple, reliable benchmarks to guide their borrowing. Enter the 28/36 Rule—a financial rule of thumb that’s become more relevant than ever in 2025. Whether you’re buying your first home, upgrading, or just trying to keep your household budget on track, understanding this rule could be your key to financial peace of mind.
What Is the 28/36 Rule?
The 28/36 Rule is a widely used guideline in lending and personal finance. It suggests:
- 28% – No more than 28% of your gross (pre-tax) monthly income should go toward housing costs (including mortgage repayments, rates, and insurance).
- 36% – No more than 36% of your gross monthly income should go toward all debt repayments (housing plus car loans, credit cards, personal loans, etc.).
This rule gives both borrowers and lenders a quick way to assess how much debt is manageable, helping to prevent financial stress and over-commitment.
Why Lenders and Brokers Still Use the 28/36 Rule in 2025
Despite the rise of automated credit scoring and detailed expense verification, the 28/36 Rule remains a key checkpoint for Australian lenders in 2025. Here’s why:
- Responsible Lending Obligations: With ASIC’s continued emphasis on responsible lending, banks need to ensure borrowers aren’t overextended. The 28/36 Rule provides a clear, defendable standard.
- APRA Stress Testing: New APRA guidelines in early 2025 require lenders to stress test borrowers at higher interest rates, making the 28/36 Rule even more critical for initial eligibility screens.
- Affordability Crunch: With the average Australian mortgage now exceeding $600,000 in major cities, lenders are wary of households stretching too far. The rule helps keep approvals within realistic, sustainable limits.
Mortgage brokers and bank assessors routinely use this ratio during preliminary assessments, often before running more granular serviceability calculators. If your numbers exceed these thresholds, expect extra scrutiny—or a declined application.
How to Apply the 28/36 Rule to Your Own Finances
Let’s see how the 28/36 Rule works in practice for an Australian household in 2025.
Example: Anna and Ben earn a combined $160,000 per year before tax, or about $13,333 per month.
- 28% for Housing: 28% of $13,333 = $3,733/month maximum for mortgage, council rates, and home insurance.
- 36% for Total Debt: 36% of $13,333 = $4,800/month for all debt obligations (housing, car loan, credit cards, personal loan).
If Anna and Ben’s new mortgage would cost $3,600/month and they have $800 in other loan repayments, they’d be right at the 33% total debt-to-income mark—comfortably under the 36% threshold.
But if they considered a more expensive home with a $4,500/month mortgage, their total debt would jump to $5,300/month, pushing their debt-to-income ratio above 39%. That’s a red flag for most lenders—and a warning sign for their own budget.
Limitations and Nuances: When the Rule Isn’t Enough
The 28/36 Rule is a starting point, not a guarantee. Here are some scenarios where it might fall short in 2025:
- High Cost-of-Living Areas: In Sydney and Melbourne, even average homes may require stretching above 28%—so lenders may allow exceptions for high-income borrowers with low living expenses.
- Variable Income Streams: Gig workers, contractors, and the self-employed may need to demonstrate lower ratios or provide extra documentation, as banks scrutinise income stability more closely in 2025.
- Other Expenses: The rule doesn’t account for childcare, private school fees, or health costs. Lenders will still look at your overall living expenses and discretionary spending.
Even so, using the 28/36 Rule as a personal guide helps you avoid biting off more debt than you can chew—especially as interest rates remain unpredictable in 2025.
How to Stay Within Safe Limits—And What to Do If You’re Over
If your ratios are too high:
- Consider reducing your borrowing amount or looking at more affordable properties.
- Pay down higher-interest debts first, like credit cards or personal loans, to free up monthly cash flow.
- Review your household budget for potential savings in subscriptions, discretionary spending, or non-essential costs.
Remember: being approved for a loan doesn’t mean it’s affordable for your lifestyle. Using the 28/36 Rule helps you set your own boundaries—so you can borrow with confidence, not anxiety.
