Your pre-approval came back lower than expected. You are not alone. After three rate rises in 2026, lenders are assessing you at a rate that is nearly 3% above what you actually pay, which has carved tens of thousands of dollars off what borrowers could access just 18 months ago. The good news is that borrowing power is not fixed. Here is how to push it back up.
What is borrowing power and how do lenders calculate it?
Borrowing power is the maximum loan amount a lender will approve based on your income, debts, expenses, and living costs. Lenders do not use your actual interest rate to stress-test you. They add a serviceability buffer, currently around 3% above the loan rate, so if your variable rate sits at 5.9%, the bank is modelling your repayments at roughly 8.9%. That buffer is the single biggest reason borrowing capacity has dropped since mid-2024.
On top of the buffer, lenders factor in every committed liability you carry: credit cards, car loans, personal loans, Buy Now Pay Later accounts, even HECS-HELP. Each one reduces the surplus income you can direct toward a mortgage. If you want a rough number before talking to anyone, the borrowing power calculator is a good starting point.
The quick wins that move the number most
These are the changes that produce the biggest uplift in the shortest time.
Close or reduce credit card limits
This one surprises almost everyone. A credit card limit reduces your borrowing power even when the balance is zero. Lenders assess a committed repayment of roughly 3.8% of the limit each month. Run the maths:
| Debt or limit | Monthly assessed commitment | Rough borrowing power reduction |
|---|---|---|
| $20,000 credit card limit (zero balance) | ~$760/month | ~$90,000 to $100,000 |
| $10,000 credit card limit (zero balance) | ~$380/month | ~$45,000 to $50,000 |
| $500/month car loan | $500/month | ~$55,000 to $65,000 |
| $300/month personal loan | $300/month | ~$33,000 to $40,000 |
| $150/month Buy Now Pay Later | $150/month | ~$16,000 to $20,000 |
| $40,000 HECS-HELP (at median salary) | ~$300 to $400/month deducted at source | ~$33,000 to $45,000 |
Closing a $20,000 card you never use can free up close to $100,000 in borrowing capacity. If you have two or three store cards sitting in a drawer, close them before you apply. Read how your credit score is affected before you do anything with multiple accounts, because timing matters: how your credit score affects your home loan.
Pay out personal loans and car finance
If you can clear a car loan or personal loan before you apply, do it. The monthly repayment goes away, and the assessed commitment disappears from the lender's model. Even partially reducing the balance matters less than elimination. If cash is tight, check whether the money sitting in a savings account earns less than the interest rate on the loan. Sometimes it makes sense to pay the loan out and reborrow via the mortgage at a lower rate later.
Shut down Buy Now Pay Later accounts
Afterpay, Zip, Humm, and similar services are now treated the same as credit facilities by most lenders. A small BNPL account with a $1,500 limit might cost you $15,000 to $20,000 in borrowing power. Shut them all down before you apply and get written confirmation of closure. Bank statements going back 90 days will show any active BNPL transactions, and a credit assessor will count them.
How income affects your borrowing power (and how to maximise it)
Overtime, bonuses, and commission
Regular overtime and bonuses can be included, but lenders want to see a two-year history. If your payslips show consistent overtime, make sure it is documented clearly. One-off bonuses are usually averaged over two years, so a bumper year followed by a flat year halves the contribution. Commission-based roles are treated similarly. If your income structure has changed recently, talk to a broker before you apply so the presentation matches what lenders want to see.
Rental income
If you already own investment property, rental income typically gets shaded to 70% to 80% of the gross figure by most lenders. Some lenders will accept 100% for positively geared properties. Where you apply matters. This is exactly the kind of thing where lender selection makes a real difference.
Self-employed income
If you are self-employed, your borrowing power is calculated from your taxable income, not your revenue. Depending on your structure, there are add-backs available: depreciation, once-off expenses, trust distributions, and vehicle costs. Some lenders are much more accommodating than others. Our self-employed home loan guide walks through what you can and cannot include.
Most brokers chase rate. We chase the lender that will actually say yes.
Cleaning up your expenses before you apply
The 90 days of bank statements before your application date are what the lender actually sees. A single month of heavy spending can create a higher assessed living expense figure that follows you into the credit model. Here is what to think about:
- Gambling transactions on statements are a red flag to every lender, regardless of the amounts.
- Excessive food delivery, subscriptions, and entertainment in the three months before application will inflate your declared living expenses.
- You do not need to live like a monk, but you do need the statements to reflect a sustainable lifestyle.
If you are planning to apply in September, start cleaning up your spending from June. Do not wait until August and try to squeeze it.
The buffer rate difference between lenders
The RBA cash rate is 4.35% as of June 2026. Variable rates from major lenders sit in the high 5% to low 6% range. Add the 3% serviceability buffer and you are being assessed at roughly 8.5% to 9%.
What most people do not realise is that different lenders apply their buffers to different base rates. If lender A is offering 5.7% and lender B is offering 5.9%, but lender A applies their buffer to a higher floor rate, lender B might actually approve you for more despite having a higher advertised rate. Servicing calculators vary significantly between lenders, and this is precisely where using a Norwest mortgage broker adds value that a comparison website cannot replicate. We run your numbers across multiple lenders, not just one.
A longer loan term also increases borrowing power. A 30-year term spreads repayments further than a 25-year term, so the monthly commitment drops and the assessed surplus income rises. If you have already paid down a chunk of a previous loan, consider whether switching to a longer term on a refinance makes sense for your situation.
You can model the repayment difference yourself with the loan repayment calculator before we talk.
Things that quietly destroy borrowing power
These are the ones that catch people off guard.
Multiple credit enquiries. Every time you apply for credit, including a new credit card, a car loan, or even a phone plan with a credit check, it leaves a hard enquiry on your file. Too many enquiries in a short period signals credit-seeking behaviour to lenders. Hold off on any new applications for at least six months before applying for a home loan.
Undisclosed debts. If you have a loan a family member is repayment on, or a card in joint names that you forgot about, the lender will find it during their check. Disclose everything. Surprises at assessment kill deals.
A low credit score. Scores below 600 limit your lender options significantly. Some lenders will not touch you below 650. Paying bills on time, reducing outstanding limits, and avoiding new applications all help. More detail in our home loan pre-approval guide.
HECS-HELP debt. Your employer deducts repayments at source based on your income. Lenders see this as a committed liability. A $40,000 HECS balance at a median salary means roughly $300 to $400 per month less in assessed surplus income.
A guarantor can unlock more
If a parent or close family member has equity in their property, a guarantor arrangement lets them put that equity up as additional security. This can get you into a property you could not otherwise afford and can eliminate the need for Lenders Mortgage Insurance (LMI). The guarantor does not need to service the loan, but they need to understand the risk. It is worth reading how a guarantor home loan actually works before you approach a family member.
If you want a clear picture of where you stand and what to tackle first, grab our free borrowing power checklist and we will walk you through it. It covers every lever in this article with a step-by-step action plan you can start this week.
Ready to find out how much you can actually borrow?
Call us on 1300 11 7976 or book a free strategy call and we will run your numbers across our lender panel. We work with buyers across Sydney and the Hills District every day, and we know which lenders are moving the goal posts and which ones are still open for business. No cost, no obligation.
Quick answers
Frequently asked questions
Yes, significantly. Lenders assess a committed repayment of roughly 3.8% of your total credit card limit every month, regardless of whether you carry a balance. A $20,000 limit can reduce your borrowing capacity by $90,000 to $100,000 even at a zero balance. Closing unused cards before you apply is one of the fastest ways to lift your borrowing power. Get written confirmation from the bank that the account is closed.
The most effective moves are: closing unused credit cards and reducing limits, paying out personal loans and car finance, shutting down Buy Now Pay Later accounts, cleaning up your bank statements for the 90 days before application, and applying through the right lender for your income type. Lender servicing calculators vary considerably, so a broker can often find you $50,000 to $100,000 more by matching you to the right bank.
The serviceability buffer is the extra percentage a lender adds to your actual interest rate when stress-testing whether you can afford the loan. In June 2026, most lenders add around 3% to the actual rate. So if your variable rate is 5.9%, the lender assesses you at approximately 8.9%. This buffer is the primary reason borrowing capacity has dropped since mid-2024. It is set by APRA and applies across all regulated lenders.
HECS repayments are deducted at source by your employer, and lenders treat them as a committed monthly outgoing. At a median salary, a $40,000 HECS balance typically reduces your surplus income by $300 to $400 per month, which can translate to a $33,000 to $45,000 reduction in borrowing capacity. Paying it down before you apply can help, but run the numbers with a broker first to see if the cash is better used elsewhere.
It depends on the lender. Some lenders apply different floor rates to their fixed-rate assessment, which can shift your assessed repayment. In some cases, fixing part of your loan at a lower assessed rate can increase what you qualify for. It is not a universal rule, but it is worth checking with a broker who can model both scenarios across multiple lenders.
Most lenders want to see three months of employment in your current role, and six months to two years if you are a casual employee or in probation. If you recently changed industries, some lenders are more comfortable with a shorter history than others. Self-employed applicants typically need two full years of tax returns. There are specialist lenders with different criteria if your situation is non-standard.
Yes, applying jointly is one of the simplest ways to lift your borrowing capacity. Both incomes are included in the assessment, and the combined surplus income supports a larger loan. The tradeoff is that both partners' debts and credit histories are also included. If one partner has a higher income and lower debt load, a joint application almost always results in a higher approval amount.
Close unused credit cards and get written confirmation of closure. Pay out or reduce any personal loans or car finance. Shut down Buy Now Pay Later accounts. Avoid any new credit applications for at least six months. Then clean up your bank statement spending for the 90 days leading into application. These steps alone can add $50,000 to $150,000 in borrowing capacity for many borrowers.
Most lenders will include regular overtime and bonuses, but they want to see a two-year track record. They typically average the amounts over those two years. So a year where you earned $20,000 in overtime followed by a year with $5,000 in overtime means roughly $12,500 is included, not $20,000. If your income has grown recently, make sure your employer can document the history clearly.
Significantly. Servicing calculators differ between lenders in how they treat living expenses, credit card limits, rental income shading, and floor rates for fixed versus variable loans. Two lenders looking at the same applicant can produce approval amounts that differ by $80,000 to $120,000. This is why working with a broker who can compare your scenario across multiple lenders, rather than walking into one bank, can make a material difference to your outcome.
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