What Is Your Borrowing Capacity and How Can You Lift It?

Your borrowing capacity is the maximum amount a lender is willing to lend you, and it is driven largely by your income, expenses, debts and deposit, although the property and LVR also matter.

For Perth buyers, knowing this figure before you inspect a single home puts you in control. It sets your search, sharpens your offers and shows you which steps could lift your result. This article walks through how lenders reach their number and what you can do to strengthen yours.

What Is Borrowing Capacity?

Borrowing capacity is the loan amount a lender calculates you can repay based on your income, expenses, debts and the loan structure. It is not a fixed number, and it can differ from one lender to the next.

Lenders weigh your earnings against your living costs and existing commitments. They also test whether you could still meet repayments if your interest rate were higher than the rate you actually pay. Because each lender applies its own assessment rules, two lenders can give two different results for the same borrower. That is one reason many buyers use a broker to compare home loan options across a wide panel before choosing.

If you want a starting point, our borrowing capacity page helps you see what you could afford before you commit to a property search.

What Do Lenders Look at When Assessing Your Home Loan Application?

Lenders look at your income, your living expenses, your existing debts and your deposit. Each of these moves your result up or down.

Income is the foundation, and lenders treat different types differently. Variable income such as bonuses, overtime or commissions is often discounted or may need a history before it is counted. Policies vary by lender. Self-employed borrowers are usually assessed on documented income, such as tax returns and financials, which also varies by lender. Specialist options such as self employed loans exist for those whose income does not suit standard assessment.

On the other side sit your expenses and debts. Credit card limits count even when the balance is zero, because lenders assess the limit as a potential debt. Personal loans, car finance and buy-now-pay-later accounts also reduce what you can borrow.

How a Credit Card Limit Changes Your Result

A high credit card limit can reduce your borrowing capacity even if you pay the card off every month. Closing or lowering an unused limit before you apply can lift your result.

As an example, consider a Perth couple preparing to buy. They hold two credit cards with generous limits that they rarely use, and a car loan with a few years left. When they first check their position, the assessment treats both card limits as debt they could draw on. Their broker suggests they cancel one card, reduce the limit on the other, and review the car loan balance. After those changes, the lender assessment shows a higher figure than it did before, and the couple apply for pre-approval with a clearer budget.

The trade-off is that cancelling cards can limit your short-term flexibility, and closing an account may affect your credit file. The exact gain depends on the lender, so it is worth testing the numbers before you act.

Which Loan Structure Affects What You Can Borrow?

Your loan structure affects your borrowing capacity because the way repayments are assessed depends on the loan type. Lenders generally apply an assessment buffer to all loan types, and interest only loans are assessed on the higher principal and interest repayments over the shorter remaining term.

Owner occupied buyers typically borrow on principal and interest, which means each repayment covers interest plus some of the loan. Interest only periods lower the repayment for a time, but lenders assess you on the higher repayments that follow, so they do not always lift your capacity. They also mean you are not reducing the loan during that period.

A linked offset account can help you build equity sooner, because the balance in the account reduces the interest charged on your loan. The trade-off is that offset features can come with higher fees or a slightly different rate than a basic loan, so it is worth comparing the full cost.

How Much Could Your Repayments Be? A Worked Example

Repayments depend on the loan amount, the rate and the term, so working through an illustrative example shows what a borrowing figure feels like each month.

Using an illustrative rate of 6.75% p.a. over 30 years, a $600,000 loan on principal and interest comes to roughly $3,891 a month. This is an example only and not a quote, and your actual rate will depend on your lender, deposit and loan features.

If you saw a lender's maximum figure and borrowed right up to it, that repayment would sit at the top of your budget. Many buyers choose to borrow below their maximum so they keep room for rate changes, holidays and life events. Our mortgage repayment calculator lets you test different amounts and terms.

Can a Smaller Deposit Still Work?

A smaller deposit can still work, but a higher loan to value ratio (LVR) usually means Lenders Mortgage Insurance (LMI) and tighter assessment.

LMI is a one-off cost that protects the lender, not you, and it is often added to the loan, which increases what you owe. Some borrowers, depending on their profession and circumstances, may be eligible for LMI waivers with certain lenders. Eligibility varies by lender, so check the conditions before you plan around it.

Steps That Can Improve Your Borrowing Capacity

You can improve your borrowing capacity by reducing debts, lowering card limits, trimming discretionary spending and keeping your credit file healthy.

Lenders look closely at spending patterns in the months before you apply, so tidying up your accounts early gives you a cleaner picture. Paying down personal loans or car finance can create room. Adding a co-borrower with a stable income can also lift the total assessed income, although it brings shared responsibility for the loan.

If you already own a home, a review of your existing loan can show whether a change would help. A loan health check is a good place to start.

Why Pre-Approval Matters Before You Search

Home loan pre-approval gives you an indication of how much a lender may be willing to lend, so you can search with confidence. It is conditional and is not a final approval.

The lender will still check the property and your circumstances at the time you apply, and pre-approval usually expires after a set period. A pre-approval lets you move decisively when the right home appears, and it keeps your search inside a range you have already tested.

If your plans point to a first purchase, our first home buyers in Perth page explains how we support buyers at this stage.

Call one of our team or book an appointment at a time that works for you, and we will map your borrowing capacity, compare lenders across Australia and build a plan to get you into the home you want. You can also book an appointment online.

Frequently Asked Questions