10 Ways to Improve Your Borrowing Power

Borrowing power — also called borrowing capacity or serviceability — is the maximum amount a lender is willing to lend you for a home loan. It is determined by a detailed assessment of your income, expenses, existing debts, and the terms of the loan you are applying for. Every lender calculates borrowing power slightly differently, which is why the amount you can borrow varies from bank to bank.

Lenders use a serviceability assessment to determine your borrowing power. This assessment calculates whether you can afford the loan repayments not just at the current interest rate, but at a higher "assessment rate" that includes a buffer. Financial regulators in most countries require lenders to stress-test borrowers — for example, APRA in Australia requires a buffer of at least 3 percentage points, while the UK's FCA and Canada's OSFI have similar stress-test rules. This means if you are applying for a loan at 6%, the lender may test whether you can afford repayments at 8% or 9%.

This buffer is designed to ensure borrowers can handle future rate increases, but it also means your borrowing power is significantly lower than it would be if lenders assessed at the actual rate. The buffer requirement is the reason many borrowers feel they cannot borrow as much as they expected — the assessment rate effectively reduces your capacity by 20-30% compared to the actual repayment amount.

The good news is that many of the factors affecting your borrowing power are within your control. By making strategic changes to your finances before you apply, you can potentially increase your borrowing capacity by tens of thousands of dollars. Here are ten proven strategies.

Existing debts are one of the biggest drags on your borrowing power. When assessing your home loan application, lenders deduct the repayments on all your existing debts from your available income. This includes car loans, personal loans, buy now pay later commitments (such as Afterpay, Klarna, and Zip), student loan debt (e.g., HECS-HELP in Australia, federal student loans in the USA, student finance in the UK), and any other ongoing financial obligations.

The impact can be substantial. A car loan with repayments of $500 per month reduces your borrowing power by approximately $75,000 to $90,000. A personal loan with $300 per month in repayments reduces it by $45,000 to $55,000. Even small recurring debts like buy now pay later balances or phone payment plans are factored in by lenders and chip away at your capacity.

If you are planning to apply for a home loan in the next six to twelve months, prioritise paying off as many existing debts as possible. Start with the smallest balances to eliminate them quickly (the "snowball" method), or focus on the highest interest rate debts first to minimise total interest paid (the "avalanche" method). Either way, every debt you close before applying will directly increase your borrowing power.

Don't forget to close the accounts once debts are paid off. A paid-off personal loan that is still technically open can still appear as a liability on your credit file. Formally close the account and get written confirmation from the provider.

This is one of the most powerful and least understood strategies for boosting borrowing power. When lenders assess your home loan application, they do not look at your credit card balance — they look at your credit card limit. This is because you could theoretically max out your credit card at any time, creating a significant additional debt obligation.

Lenders typically assume a minimum monthly repayment of 3% of the total credit limit when calculating your serviceability. So a credit card with a $10,000 limit is treated as a $300 per month liability — even if your balance is zero and you pay it off in full every month. That $300 per month in assumed repayments reduces your borrowing power by approximately $45,000 to $55,000.

To reduce your credit card limit, simply call your card issuer and request a limit reduction. This can usually be done immediately over the phone. If you want to close the card entirely, pay off any outstanding balance first, then request formal closure and written confirmation. Allow four to six weeks for the change to appear on your credit file before applying for a home loan.

If you still need a credit card for everyday spending, keep one card with the lowest limit that meets your needs — ideally $3,000 to $5,000. This minimises the impact on your borrowing power while maintaining the convenience of having a card.

Your declared living expenses directly affect your borrowing power. Lenders assess your expenses against internal benchmarks or industry standards — such as the Household Expenditure Measure (HEM) in Australia or the ONS living costs data in the UK — and use the higher of the benchmark or your actual spending. If your actual expenses are significantly above the benchmark, reducing them before you apply can meaningfully increase your borrowing capacity.

Lenders typically ask for three months of bank statements and will scrutinise your spending patterns. They are looking for regular outgoings that represent ongoing commitments: gym memberships, streaming subscriptions, meal delivery services, regular dining out, frequent online shopping, and any other recurring discretionary spending. While they understand that everyone has discretionary spending, a pattern of high spending reduces the surplus income available for loan repayments.

In the three to six months before applying for a home loan, consider going through a "financial detox." Cancel subscriptions you don't actively use, reduce dining out, pause non-essential spending, and demonstrate a pattern of disciplined financial management through your bank statements. This does not mean you need to live on rice and beans — but showing that you can manage your spending responsibly will strengthen your application.

Be aware that lenders are also required to ensure your declared expenses are realistic. If you declare expenses that are unrealistically low for your household composition, the lender will either use their internal benchmark or ask you to provide a more detailed expense breakdown. Honesty is always the best policy — understating expenses to inflate borrowing power can lead to loan denial or, worse, taking on a loan you cannot comfortably afford.

Income is the most important factor in determining borrowing power, and increasing it is the most direct way to boost how much you can borrow. However, not all income is treated equally by lenders. Understanding how different income types are assessed will help you maximise the income that counts toward your application.

Base salary is the most straightforward income type and is assessed at 100% by all lenders. Overtime, bonuses, and commission income are also included, but typically at a discounted rate — most lenders will use an average of the last two years and may only count 80% of the average. If your income includes significant variable components, having at least two years of consistent history is important.

Rental income from investment properties is usually assessed at 70-80% of the gross rent to account for vacancy and expenses. Government benefits and allowances — such as child tax credits, family benefits, and carer payments — are accepted by most lenders, though policies vary by country and institution. Child support payments are also accepted, though some lenders require evidence that payments will continue for a minimum period.

If you are self-employed, your borrowing power is based on your taxable income as declared on your tax returns. This creates a common tension: minimising taxable income for tax purposes reduces your borrowing power. If you are planning to apply for a home loan, consider the trade-off between tax minimisation strategies and demonstrating strong income to lenders. Some lenders offer "low-doc" loans for self-employed borrowers with non-standard income documentation, though these typically come with higher rates and fees.

The loan term directly affects your monthly repayments, and therefore your borrowing power. A longer loan term means lower monthly repayments, which increases the amount lenders are willing to lend you. The standard home loan term is 25 to 30 years in most countries, but terms of 15 or 20 years are also common — and choosing a longer term can boost your borrowing power noticeably.

For example, on a $500,000 loan at 6%, monthly repayments on a 25-year term are approximately $3,222, while repayments on a 30-year term are approximately $2,998. That $224 difference in monthly repayments translates to roughly $30,000 to $40,000 in additional borrowing power.

The trade-off is that a longer loan term means you pay more interest over the life of the loan. That same $500,000 loan at 6% costs approximately $466,000 in total interest over 25 years, compared to $579,000 over 30 years — a difference of $113,000. This is a significant amount, but it can be mitigated by making extra repayments once you are in the loan.

Be aware that some lenders set maximum loan terms based on your age at application. If you are over 40, some lenders may require a shorter term so that the loan is repaid before a certain age (often 65 or 70). This can reduce your borrowing power if a shorter term is mandated. Discuss this with your broker if age-related restrictions might apply to your situation.

Applying for a home loan jointly with a partner, spouse, or family member combines your incomes and can dramatically increase your borrowing power. Two incomes of $80,000 will support a much larger loan than a single income of $80,000, because the total household income is doubled while many expenses (housing, utilities, insurance) are shared rather than duplicated.

Joint applications are most common between couples — married or de facto — but can also be structured between friends, siblings, or parent-child combinations. However, it is critical to understand that joint borrowers are jointly and severally liable for the entire loan. This means each borrower is responsible for the full debt, not just their "share." If one party cannot make repayments, the other must cover the full amount.

For unmarried joint borrowers, it is strongly advisable to have a co-ownership agreement prepared by a solicitor. This document should outline each party's contribution to the deposit, how repayments will be split, what happens if one party wants to sell or cannot continue paying, and how proceeds will be divided if the property is sold. Without such an agreement, disputes can be costly and emotionally damaging.

If a joint application is not possible, consider a guarantor arrangement instead, where a family member provides security but is not named on the loan itself. This increases borrowing power without creating the same level of shared liability. We discussed guarantor loans in detail in our deposit guide.

One of the best ways to understand and optimise your borrowing power is to model different scenarios using a borrowing power calculator. By adjusting variables like income, expenses, existing debts, and loan term, you can see exactly how each factor affects how much you could borrow — and identify where small changes make the biggest difference.

Our calculator takes into account your gross income, monthly living expenses, existing debt repayments, and the current interest rate environment to provide an estimate of your maximum borrowing capacity. It also factors in the regulatory serviceability buffer used by lenders in your region, giving you a realistic picture of what lenders will actually approve rather than a theoretical maximum.

Try running these scenarios to see how different changes affect your result:

• Reduce your credit card limits to $5,000 and recalculate — see how much borrowing power you gain
• Add a second income (joint application) and see the impact on your capacity
• Reduce your declared monthly expenses by $500 and observe the change
• Switch from a 25-year to a 30-year term and compare the results
• Remove an existing car loan or personal loan and see the boost
• Try different interest rates to understand your sensitivity to rate changes

Try our borrowing power calculator now — it's free, takes less than two minutes, and gives you an instant estimate that you can use as a starting point for conversations with mortgage brokers and lenders.

Keep in mind that online calculators provide estimates only. Your actual borrowing power will depend on the specific lender, their credit policies, and a detailed assessment of your full financial situation. A mortgage broker can provide a more accurate figure and identify lenders whose policies best suit your circumstances.

Improving your borrowing power is not about gaming the system — it is about presenting your financial situation in the strongest possible light and making strategic decisions that genuinely improve your ability to service a loan. Lenders want to lend to responsible borrowers, and demonstrating that you manage your finances well is the best way to maximise your capacity.

Start working on these strategies at least six months before you plan to apply for a home loan. Reducing debts, closing credit cards, and cleaning up your bank statements all take time. The longer your track record of disciplined financial management, the stronger your application will be.

Finally, remember that maximum borrowing power and comfortable borrowing are not the same thing. Just because a lender will approve you for $800,000 does not mean you should borrow that much. Always stress-test your repayments at a rate 2-3% above current levels and ensure you can still live comfortably with a buffer for unexpected expenses.

Read our complete first home buyer guide for a step-by-step walkthrough of the entire buying process, from saving your deposit to getting the keys.