Borrowing capacity is the number that determines what property you can buy. It is not fixed. It is a calculation based on variables you can actively influence in the weeks and months before you apply. Knowing which levers move the number and by how much can make a decisive difference to what you are able to purchase. At Madd Loans, our Brisbane based brokers help Australians across the country maximise their borrowing position every day. Here are the five moves that work.
Key Takeaways
- Borrowing capacity is not fixed. Strategic actions in the months before your application can meaningfully increase the amount a lender will approve.
- Credit card limits, not just balances, reduce borrowing capacity. Closing or reducing limits before application is one of the highest impact moves available.
- Discretionary spending shown in bank statements directly affects how lenders assess your living expenses under HEM benchmarks.
- Different lenders calculate borrowing capacity differently. Matching your financial profile to the right lender policy is a core skill of an experienced mortgage broker.
- Genuine savings history and a clean credit file are foundational. No strategy overcomes a thin deposit or missed payments on your credit file.
Power Move 1: Eliminate or Reduce Credit Card Limits
The single highest impact action most borrowers can take before a home loan application is reducing or closing credit card limits. Lenders do not assess credit cards based on what you owe. They assess them based on what you could theoretically borrow. This is a common Hidden spending trap that many borrowers overlook. Lenders calculate minimum monthly repayments on your total credit card limits as part of their serviceability assessment, regardless of whether those limits are being used. Reducing a $10,000 limit, or closing the card entirely before applying, can add $30,000 to $50,000 to your borrowing capacity with many lenders.
Power Move 2: Reduce Visible Discretionary Spending
Lenders assess your living expenses using the Household Expenditure Measure (HEM) benchmark and your actual declared expenses, applying whichever is higher. Where your actual spending exceeds that benchmark, lenders use your real figures. Interest rates affect borrowing capacity, and lenders now scrutinise bank statements carefully, looking at subscriptions, dining out, and buy now pay later commitments. In the three to six months before you apply, cancel unused subscriptions, reduce dining frequency, and close buy-now-pay-later accounts. The goal is presenting a spending pattern that benchmarks well against the Household Expenditure Measure.
Power Move 3: Pay Down Existing Debts
Every existing debt reduces the amount a lender will approve. Personal loans, car loans, HECS debt, and BNPL arrangements all appear in your declared commitments. Paying down or clearing personal loans and car finance before applying directly increases your borrowable amount. HECS debt warrants particular attention: lenders treat compulsory HECS repayments as a committed expense, and a significant balance can reduce approval amounts by tens of thousands of dollars. Where you cannot clear debts, consolidating into lower repayment arrangements can also improve your serviceability position.
Power Move 4: Optimise How Your Income Is Presented
Lenders assess different income types in different ways. Overtime and casual income is typically assessed at 50 to 80 percent of its face value. Rental income at 70 to 80 percent. Self employed income is assessed from tax returns and addbacks, with significant variation between lenders. Working with a broker who understands how different lenders treat your income type ensures your application reaches the lender whose policy is most favourable. Madd Loans accesses 30 plus lenders and knows exactly how each one treats overtime, rental income, and self employed earnings. View our home loan services to understand how we approach your specific income situation.
Power Move 5: Match Your Profile to the Right Lender
Borrowing capacity is not a single figure. It is a range that varies significantly from lender to lender because each lender applies different policies: different HEM benchmarks, different treatment of income types, different assessment rates for stress testing repayments, and different approaches to existing commitments. Borrowing power guidance, a borrower offered a low amount by one lender may receive a substantially higher approval from another because each lender assesses the same profile differently. A bank can only offer its own products. A mortgage broker compares your profile across multiple lenders and identifies who gives you the best outcome.
Conclusion
Borrowing capacity is a number you can influence. Reducing credit card limits, managing your spending footprint, paying down debts, presenting your income correctly, and matching your profile to the right lender can collectively make a substantial difference to what you are able to borrow. Madd Loans helps Australians across the country put all five of these moves into practice before they apply. Contact our team today for a free assessment.
FAQs:
What is borrowing capacity and how is it calculated?
Borrowing capacity is the maximum a lender will approve based on your income, expenses, debts, deposit, and the assessment rate used to stress test repayments.
How much can reducing my credit card limits improve my borrowing capacity?
Lenders assess cards at their full limit regardless of balance. Reducing a $10,000 limit can add $30,000 to $50,000 in borrowing capacity with many lenders.
Does a HECS debt affect my home loan borrowing power?
Yes. Lenders count HECS repayments as a committed expense that reduces your net income, directly lowering the amount they will approve.
How long before applying should I clean up my finances?
Three to six months is ideal. Lenders assess recent bank statements and spending patterns, so consistent financial behaviour before application matters significantly.
Can a mortgage broker improve my borrowing capacity compared to a bank?
Yes. Brokers compare lenders whose policies treat income, debts, and expenses differently, matching your profile to the lender most likely to approve the highest amount.
Does being self employed affect my borrowing capacity?
It can. Lenders assess self employed income differently. A specialist broker helps self employed borrowers present their income in the way lenders assess it most favourably.
