How to Improve Your Borrowing Power in Australia? (2026 Guide)

Borrowing power is the maximum amount of money a lender is willing to loan you. It is calculated by comparing your total income against your living expenses, existing debts, and the current interest rate buffer.

Understanding how banks assess your finances is the first step to buying your dream property. According to our broker experts, generic banking advice like “save more and spend less” is rarely enough to maximize your home loan.

If you want to unlock your true purchasing potential, you need to know exactly how lenders view your financial profile. Read on to discover actionable, real-dollar strategies to stretch your borrowing capacity.

What Is Borrowing Power And How Is It Calculated?

When you apply for a home loan, banks calculate your borrowing power through a strict serviceability assessment. They want to ensure you can comfortably afford your monthly repayments.

To determine this, lenders look at your total income versus your ongoing expenses. They use the Household Expenditure Measure (HEM) as a baseline. The HEM benchmark represents average living costs based on your family size and income tier.

In addition, the Australian Prudential Regulation Authority (APRA) requires banks to apply a 3% serviceability buffer. Consequently, lenders assess your ability to repay the loan at an interest rate 3% higher than the actual market rate.

Quick Summary – How To Improve Borrowing Power

Before diving into the detailed strategies, here is a quick overview of the top 10 ways to increase your borrowing capacity:

• Choose a longer loan term.
• Save a larger property deposit.
• Buy with a partner or a guarantor.
• Reduce or cancel credit card limits.
• Consolidate your high-interest debts.
• Protect and improve your credit score.
• Lower your discretionary living expenses.
• Boost and document all sources of income.
• Leverage government grants and schemes.
• Clear existing debts like car loans and BNPL.

10 Proven Ways to Increase Your Borrowing Capacity

1. Reduce Or Cancel Credit Card Limits

Lenders assess your credit cards based on their total limits, not your current balance. A high credit limit assumes you could max out the card tomorrow. For example, a $10,000 credit card limit can reduce your borrowing capacity by roughly $47,000. This happens even if the card is completely paid off. Canceling unused cards immediately boosts your serviceability.

2. Lower Your Discretionary Living Expenses

Banks scrutinize your bank statements to verify your declared living expenses. They categorize your spending into essential and discretionary costs. We highly advise tightening your discretionary spending 3 to 6 months prior to applying. Cutting back on dining out, subscriptions, and entertainment helps you easily pass the HEM benchmark.

3. Clear Existing Debts

Existing liabilities drastically impact your Debt-to-Income (DTI) ratio. Lenders subtract your ongoing debt commitments from your available monthly income. Focus on clearing car loans, personal loans, and Buy Now Pay Later (BNPL) accounts. Once paid off, legally close these accounts so they no longer appear on your credit file.

4. Boost And Document Your Income

Higher income directly correlates with increased borrowing power. Consider asking for a raise, picking up a side hustle, or demonstrating expected rental yield increases. Keep in mind, lenders assess income differently. Some lenders use 100% of your overtime income for their calculations. In contrast, other lenders only use 80% of overtime income. Proper documentation is key to maximizing this assessment.

5. Save A Larger Deposit

A larger deposit means you need to borrow less money. This lowers your Loan-to-Value Ratio (LVR), making you a lower-risk applicant to the bank. Furthermore, a strong deposit helps you avoid expensive Lenders Mortgage Insurance (LMI). Saving a 20% deposit is the best way to secure favorable interest rates and bypass LMI fees.

6. Protect And Improve Your Credit Score

A pristine credit score gives lenders confidence in your financial reliability. It can also qualify you for lower interest rates, which subsequently increases your borrowing power.

Avoid making multiple credit enquiries in a short period. Pay all bills on time, and regularly check your credit report to dispute any inaccuracies before applying.

7. Choose A Longer Loan Term

Opting for a 30-year loan term instead of a 25-year term reduces your monthly repayment obligations. Since the monthly commitment is lower, your serviceability assessment improves. This simple adjustment can significantly stretch the maximum amount you can borrow.

8. Consolidate Your Debts

If you have multiple high-interest debts, debt consolidation can be a smart strategy.

Rolling high-interest personal loans and credit cards into a single home loan typically reduces your overall monthly repayment. This frees up cash flow and directly increases your assessed borrowing power.

9. Buy With A Partner Or Guarantor

Co-borrowing with a spouse, partner, or family member combines your incomes. This dramatically increases your overall serviceability. Alternatively, using a parental guarantor leverages their property equity. A guarantor loan lowers your LVR, removes the need for LMI, and strengthens your application significantly.

10. Leverage Government Grants And Schemes

First home buyers can utilize various government initiatives to stretch their purchasing power. Programs like the First Home Guarantee (FHBG) or state-based stamp duty concessions reduce the upfront cash required. By saving on upfront costs, you can allocate more funds toward your actual deposit.

Ready to see your new borrowing capacity?

Once you implement these strategies, it is time to run the numbers. Use our Borrowing Power Calculator to test your hypothetical capacity based on the current financial climate.

Broker Insider Secrets – The Real-Dollar Impact of Lender Selection

Most bank websites only talk about their own strict lending criteria. However, the biggest secret in the mortgage industry is how different lenders treat the exact same applicant differently.

Since Home Loan Experts specialise in navigating complex lending scenarios, we know that choosing the right lender is crucial.

Tier 1, Tier 2, and Tier 3 lenders all use different formulas to calculate your risk. For instance, Bank A might lend you $500,000, while Bank B might lend you $650,000.

This massive gap occurs because certain lenders have lower assessment rate buffers, while others do not heavily shade rental income.

Lender Comparison Breakdown

Final Words

Improving your borrowing power isn’t about cutting back, it’s about understanding how lenders think and making smart, strategic moves. From reducing debt to choosing the right lender, small changes can unlock big results.

Get expert guidance, structure your finances and move forward with confidence toward the property you truly want. We have specialist mortgage brokers who can work out on your borrowing capacity and increase the amount you can borrow.

So, why not speak to us today? Call us on 1300 889 743 or fill in our online assessment form to get started.