How a novated lease affects your home loan borrowing capacity

By changyang1230 and Leonard Nagawidjaja · Updated 1 October 2026

By now, most people looking into a novated lease hopefully realise that one of its downsides is the impact on their ability to service a home loan. But by how much? It is one of the most common questions online, and until now it is the one I have been least equipped to answer. The commonly repeated rule of thumb — a leased car costs you about three times its value in borrowing power — gets quoted constantly, but it has never been officially confirmed, and it takes no account of lease length, taxable income or anything else that varies from one borrower to the next.

So, for the first time in this site’s history, I asked an expert to contribute. The modelling and the core write-up below were contributed by Leonard Nagawidjaja of AA Finance Solutions, an MFAA-approved credit adviser with over 15 years in the industry (Australian Credit Licence #462491), who ran a matrix of scenarios through Bankwest’s and Macquarie’s calculators. His section is presented as he wrote it; the results grid, the explanation of the assessment methods, and the commentary that follows are mine, based on Leonard’s calculations.

All the figures in this article are indicative only. Your own result will differ with your circumstances (income, household, other debts), with each lender’s servicing calculator, and with where your living expenses sit against the lender’s HEM benchmark. Treat the ”× car” multiples as a guide to the size and direction of the effect, not as the figure you will get.

Every scenario is built around one of two real, similarly-priced mid-size SUVs:

The car loans finance the full drive-away price with no deposit, so wherever a loan amount appears below it is also the car’s price. The borrower earns $130,000 — with one scenario repeated at $300,000 — and is buying at 80% LVR.

Novated lease vs car loan: how it affects your borrowing capacity

By Leonard Nagawidjaja, AA Finance Solutions

When purchasing a vehicle, many clients focus on the tax savings of a novated lease or the interest rate of a car loan. However, when you’re planning to buy a property, the more important question is:

How will the lender assess the commitment, and what impact will it have on borrowing capacity?

Based on the modelling below, the answer can be surprisingly different from what most people expect.

The starting point

For a single applicant earning $130,000 per year, borrowing capacity without any vehicle finance was modelled at:

• Bankwest: $683,000
• Macquarie: $690,000

Assumptions include:

• Single applicant
• No dependants
• Living expenses based on the lender’s HEM (Household Expenditure Measure)
• $200 per month vehicle maintenance allowance already included

Option 1: traditional car loan for the EV

The model used a car loan at 6.49% p.a. plus a $15 monthly fee. With a loan of $60,789 and a loan term of 5 years, the total repayment is $678.49 per fortnight (consisting of $555.07 per fortnight for the loan and $123.42 per fortnight for running costs).

Borrowing capacity impact:

Compared to having no vehicle finance:

• Bankwest capacity reduced by $156,250 2.6× car
• Macquarie capacity reduced by $185,000 3.0× car

The reason is simple: lenders assess the loan repayment as an ongoing financial commitment that reduces disposable income available for mortgage repayments.

Option 2: EV novated lease

In comparison, a borrower who took an EV novated lease under a similar repayment:

• EV novated lease
• 5-year term
• 15% interest rate
• Pre-tax deduction of $682.45 per fortnight

Borrowing capacity impact:

Compared to the traditional car loan:

• Bankwest capacity increased by $33,950
• Macquarie capacity increased by $63,000

What about higher income earners?

At $300,000 income, the difference becomes much smaller.

Bankwest

• No car: $1,445,550
• EV novated lease: $1,363,150

Reduction: approximately $82,400 1.4× car

Macquarie

• No car: $1,440,000
• EV novated lease: $1,360,000

Reduction: approximately $80,000 1.3× car

For higher-income borrowers, the lease deductions represent a much smaller percentage of income, so servicing is less affected.

Why does the novated lease perform better?

Both sides of this comparison run for the same term: a five-year car loan against a five-year EV novated lease, sized to a similar repayment. Term matters a great deal here — a shorter lease raises the fortnightly payment and worsens the result — so the two are held level at five years.

For the EV novated lease:

• Gross salary remained $130,000
• Salary sacrifice was $17,743.70 per annum
• Taxable salary reduced to $112,256

Key takeaway

For borrowers planning to purchase a property, a vehicle finance decision can have a significant impact on borrowing capacity. Based on this modelling:

• A traditional car loan reduced borrowing capacity the most.
• An EV novated lease generally produced a better servicing outcome.
• Longer lease terms performed better than shorter terms.

Bottom line: if you’re considering both a property purchase and a new vehicle, it is worth reviewing the servicing impact before committing. The cheapest vehicle finance option is not always the option that provides the strongest borrowing capacity outcome.

How lenders assess a novated lease

Leonard’s last point is worth making explicit. A car loan is unambiguous: it is a debt with a repayment, and every lender treats it the same way. A novated lease is not a debt in your name at all. It is a deduction from your payslip, and the lender has to decide how to treat it.

(Novated lease figures are for the 5-year, 9% EV lease. $589.57 per fortnight pre-tax × 26 = $15,329 per year.)

This is how both Bankwest and Macquarie assess a novated lease, and how most lenders do.¹ Leonard has confirmed it for both, and Macquarie’s guidance to brokers spells it out: reduce the applicant’s income by the pre-tax lease deduction, enter only the post-tax part of the lease as a commitment, and enter nothing at all when the lease is paid entirely pre-tax, as an FBT-exempt EV lease usually is. Macquarie also asks brokers to record how the borrower will clear the balloon at the end of the lease.

Every lender has a defined position on how a novated lease is treated. It is written into their credit policy and supplied to accredited mortgage brokers — it is simply not published for consumers. A broker can tell you where a given lender sits and how it will read your specific employer’s arrangement; you generally cannot work it out for yourself from anything public. Policies also change, and these scenarios were run in September 2026.

The full modelling grid

Leonard’s article quotes the headline numbers. Below is every scenario the model produced, so you can see the full spread, each assessed the way that lender actually treats it.

Each capacity figure carries a second line: how much borrowing power the scenario costs against that lender’s no-car baseline, and what that loss works out to as a multiple of the car’s drive-away price ($60,789 for the BYD, $58,807 for the RAV4).

Every lease and loan payment in these tables is a link. Each one opens the calculator loaded with the exact inputs that produced it — car price, term, effective interest rate, running costs, income — so you can check the derivation, or change one field and see what it does to the payment. The borrowing capacity figures are Leonard’s servicing-calculator output and are not reproducible here.

Bankwest — $130,000 single applicant

Macquarie — $130,000 single applicant

$300,000 single applicant

Only the 5-year, 9% EV lease was modelled at this income level.

Assumptions behind every row. The cars are the BYD Sealion 7 Premium ($60,789.25) and Toyota RAV4 GXL Auto eFour ($58,807) introduced at the top, each financed at full drive-away price with no deposit. Single applicant, no dependants. Living expenses set at the lender’s HEM benchmark: a $2,520 per month base for Bankwest and $2,400 for Macquarie at the $130,000 income level, and $4,190 at $300,000. A $200 per month vehicle maintenance allowance is already built into the expense figure in every row, including the baseline — so the “no car” row is a person who runs a car, not a person who does not own one. Everything else in the applicant’s profile is held constant across rows, so the differences shown are attributable to the vehicle finance alone.

What the numbers actually say

1. The “3× the car” rule of thumb is roughly right for a car loan

This was the claim I most wanted to test, and the modelling is set up to test it cleanly: each car loan finances the car’s full drive-away price, so the amount borrowed is the car’s value.

So the folklore holds up well for conventional car finance — 2.6× to 3.2× across four combinations, with 3× sitting squarely in the middle.

For the five-year EV leases the multiple is 1.7× to 2.0× — better than the equivalent car loan by roughly the price of the car itself. The five-year petrol lease, at 2.5× to 2.6×, still beats the petrol car loan (2.9× to 3.2×), though by less, for the reason in point 4. The two-year leases are worse again, for the reason in the next point.

Note, though, that whichever way it is financed over five years, a ~$60,000 car removes somewhere between $105,000 and $190,000 of borrowing power on a $130,000 income.

2. Longer leases are better for servicing — the opposite of the usual risk advice

A 2-year lease has a much higher fortnightly payment than a 5-year lease on the same car, and servicing calculators only care about the payment. Stretching a 9% EV lease from 2 years to 5 years recovers $33,100 of capacity at Bankwest and $35,000 at Macquarie.

The two-year leases cost 2.3× to 2.6× the car’s price in borrowing power. At worst (Bankwest, 15%) that is level with a car loan on the same car: most of the lease’s advantage is gone.

This runs against the general advice in lease length and risk, where a shorter lease reduces your exposure to early-termination loss. For borrowing capacity it points the other way: the shorter the lease, the bigger the hit.

3. The interest rate inside the lease impacts your borrowing capacity

Going from 9% to 15% on the same 5-year EV lease costs $16,650 of Bankwest capacity and $17,000 at Macquarie. The lease rate is already the least transparent number in a novated lease quote; this is one more reason to extract it and negotiate it rather than accept the first quote.

4. An ICE novated lease behaves worse than an EV novated lease

The ICE lease has the smallest pre-tax deduction of any lease row — $220.81 per fortnight — and the highest taxable income. It still lands below every 5-year EV lease.

The reason is the Employee Contribution Method: $417.20 per fortnight of that lease is paid from post-tax salary to extinguish the FBT liability. Post-tax money has no tax benefit attached, and the lender enters it as a commitment, so that part behaves exactly like a car-loan repayment. The pre-tax part only reduces your salary, and because it also reduces your tax, it costs you less than its face value: on a $130,000 income, $100 of pre-tax deduction takes about $68 out of your pay. The FBT exemption on EVs is not just a tax saving: it is also what keeps the whole payment on the pre-tax side, where each dollar costs you less borrowing power.

5. Higher incomes dilute the effect, but do not remove it

At $130,000, the 9% EV lease costs 15.5% of Bankwest capacity. At $300,000, the same lease costs 5.7%. Two things are at work. The higher earner’s larger tax saving means the same pre-tax deduction takes fewer after-tax dollars out of their pay, and what it does take is a much smaller share of a much larger surplus. This is consistent with how novated lease benefits generally scale with income.

6. Paying cash is still best for servicing, but it comes out of your deposit

A novated lease holding its own against a five-year car loan does not make it the best option for borrowing power. By design, any finance is worse than none: a lease or a loan adds a commitment the lender must deduct, and a car bought outright adds none. The baseline row in the grid is effectively the cash buyer. It already includes a car’s running costs, so buying a ~$60,000 car outright would leave the capacity figure where it is ($683,000 at Bankwest, $690,000 at Macquarie), against $105,000 to $190,000 lost by financing it.

Cash has its own cost, though. The $60,000 comes out of your savings, which is usually the money earmarked for the deposit. A smaller deposit means a smaller property within your borrowing capacity, a higher LVR, possibly lenders mortgage insurance, or a longer wait to save. So paying cash does not escape the trade-off; it moves it from your borrowing capacity to your deposit.

Living expenses and the HEM floor

A servicing calculator has two sides: your income, and your commitments plus living expenses. Everything above is about the first side, and how the lease is entered. The living-expenses side has a trap of its own.

Your car’s running costs should not be counted twice

A novated lease packages the car’s running costs (fuel or charging, servicing, tyres, insurance, rego) into the same pre-tax deduction as the finance. The lender already accounts for that deduction on the income side. If your declared living expenses still include those running costs, the lender is counting them twice.

So when you apply for a home loan with a lease in place, your broker can, and should, take the vehicle running costs out of your declared living expenses and note why. Macquarie’s guidance to brokers asks for exactly this note.

Whether that helps depends on HEM

Lenders do not simply take your declared living expenses at face value. They compare them with the Household Expenditure Measure (HEM), a benchmark of what a household like yours typically spends on basic living costs, set by household income, household size and location, and updated quarterly. The lender uses whichever is higher. HEM works as a floor: even if your own declaration adds up to less, the HEM figure is used instead.

That floor decides how much removing the running costs is worth. Take the single $130,000 borrower from the grid, with a Bankwest HEM of $2,520 a month, and say the lease covers $300 a month of running costs:

• If your declared expenses are well above HEM, removing the running costs genuinely lowers the expenses the lender uses, and claws back part of the lease’s hit to your borrowing capacity.
• If your declared expenses are at or close to HEM, removing them achieves little or nothing. The lender falls back to HEM, and the assessed expenses barely move. In effect you are still being assessed as if you pay the car’s running costs out of your living expenses, as well as through the lease deduction. In this scenario, it’s indeed as if they are double-counting your car’s running cost.

What to do with this if you are buying a house

• Get the servicing test run before you sign the lease, not after. A broker can model your actual numbers in ten minutes. A four or five-year lease commitment cannot be unwound cheaply — see what happens on early termination.
• Have a plan for the balloon. Lenders want to know how you will clear the residual at the end of the lease: savings, selling the car, or rolling into a new lease. Tell your broker up front.
• Declare your living expenses with the lease in mind. Your car’s running costs are paid through the lease, so ask your broker to take them out of your declared living expenses. Whether that actually lifts your borrowing capacity depends on how close your expenses are to the HEM benchmark: see living expenses and the HEM floor.
• If the gap is a deal-breaker, the order of operations matters. Settling the mortgage first and starting the lease afterwards is the standard advice for a reason. The reverse order is what costs people six figures of capacity.
• Do not forget the second-order effects. For an FBT-exempt EV, the lease also raises your adjusted taxable income via RFBA, with flow-on consequences for childcare subsidy, HELP repayments and Division 293 — none of which show up in a servicing calculator.
• Separate this decision from the tax question entirely. Borrowing capacity is not a cost you can net off against the lease saving, and the “tax saved” figure on your quote was never measuring this in the first place. Run the financial comparison in the calculator, then treat the servicing impact as a separate constraint that either fits your plans or does not.

About the contributor

Leonard Nagawidjaja is a dedicated finance broker committed to helping individuals, families, and businesses achieve their financial goals with confidence. With extensive experience over 15 years in the industry, across home loans, investment lending, asset finance, and refinancing solutions, Leonard takes a personalised approach to every client relationship. He understands that no two financial situations are the same and works closely with clients to find tailored lending strategies that suit their needs and long-term objectives. Known for his professionalism, transparency, and attention to detail, Leonard is passionate about simplifying the finance process and delivering exceptional outcomes from application through to settlement.

B.Bus, Dip. Fin · MFAA Approved Credit Adviser · Australian Credit Licence #462491 · Leonard’s profile at AA Finance Solutions

I am grateful to Leonard for running this modelling and writing it up. This site carries no advertising and sells no leads; the link above is a credit, not a referral arrangement, and I receive nothing if you contact him.

None of this is credit advice. Every servicing calculator is proprietary, every lender’s treatment of salary sacrifice differs, and all of these figures depend on assumptions that will not match yours. Nothing here is a commitment from Bankwest, Macquarie, or any other lender. See the full disclaimer.