Buying a property, whether it’s your first home or a strategic investment, starts with knowing what you can borrow. But here’s what most buyers don’t realise: borrowing capacity isn’t fixed. It can change dramatically depending on your financial habits, how you prepare, and the people advising you.
At Horizon Buyers Agency, we’re not mortgage brokers, but we work closely with some of Australia’s best, and we want to give you the clarity and tools to understand how borrowing capacity works, what influences it, and what you can do today to increase yours.
Let's break it down.
Table of Contents
What Is Borrowing Capacity?
Borrowing capacity is the amount a lender is willing to loan you based on your income, expenses, liabilities, and financial situation. But it’s not just about how much you earn, it’s about how your whole financial picture stacks up.
Lenders use what’s called a serviceability assessment, which looks at how easily you could make repayments on a hypothetical higher interest rate (usually 2-3% above the current rate). That buffer matters. And in a rising rate environment, so does every dollar on your expense list.
The Simple Formula: Income – Living Expenses – Monthly Debts = Surplus Income
That surplus is what banks use to calculate how much you can borrow. While the formula looks straightforward, every line item comes with its own quirks, and that’s where smart preparation makes all the difference.
What Impacts Your Borrowing Capacity?
Here are the key factors banks and lenders look at:
- Income: Your salary, rental income, bonuses, side income, and importantly, how stable that income is (new jobs or probation periods can reduce how much they’ll count)
- Living expenses: Rent, groceries, subscriptions, takeaway, childcare, school fees, utilities, it all counts
- Debts: Credit cards, personal loans, car loans, and Buy Now Pay Later services like Afterpay or Zip Pay
- Credit score: Any defaults, missed payments, or poor history will hold you back
- Dependents: The number of kids or people financially dependent on you
- Loan type: Interest-only vs principal & interest, variable vs fixed
- Lender policy: Every lender calculates borrowing capacity slightly differently
How to Increase Your Borrowing Power:
7 Smart Strategies
1. Cut Your Everyday Expenses (But Be Strategic About It)
Lenders will often compare your actual spending against benchmarks like the Household Expenditure Measure (HEM). If you’ve got high Afterpay usage, Uber Eats receipts, or random subscriptions, they’ll use your actual data instead, and that can lower what you can borrow.
Think of applying for finance like a job interview. You need to present well. Banks usually assess your last three months of spending, so it’s wise to tidy things up before applying.
Red flags they look for:
- Afterpay/ZipPay transactions
- Gambling transactions
- Short-term payday loans
- Large expenses (holidays, renovations)
Smart tip
Review your last three months of bank statements and reduce non-essential spending before applying. Talk to your broker if you’ve had unusual expenses; if they’re one-offs like renovations, they may be excluded.
2. Pay Down Debts (The Silent Killers)
Even an unused credit card with a $15,000 limit can significantly reduce your borrowing power. Here’s why debts hurt more than most people realise:
Credit Cards: It doesn’t matter if you pay them off every month. Banks look at the limit, not the balance. A $10,000 credit card can reduce borrowing capacity by $60k-$70k. Close unused cards before applying…easy win.
Car Loans: We Aussies love our utes, but that $60k car loan with $1,000/month repayments can slash your borrowing by up to $200,000. You need to earn significantly more to cover post-tax repayments.
Smart tip
If you’re choosing between a new car or a new investment property… you know what we’d say.
3. Improve Your Credit Score
Your credit score plays a bigger role than many realise. Pay bills on time, avoid too many credit applications, and check for errors.
Here’s where you can get a free credit report:
4. Increase Your Income (The 7x Leverage Rule)
Your income is the starting point. Earn $10,000 more, and most lenders will let you borrow around $70,000 more. That 7x leverage makes increasing your income, whether via a raise, rental income, or a side hustle, a powerful strategy.
If you’re self-employed, banks usually want to see 1-2 years of trading history. They look at your net profit before tax, but the good news is that many expenses (depreciation, interest, hire purchase costs) can be added back, giving your income a lift.
5. Save a Bigger Deposit (Or Consider LMI Strategically)
Yes, a 20% deposit avoids Lenders Mortgage Insurance (LMI) and strengthens your loan application. But if saving that full amount will take too long, especially for investors, paying LMI to buy sooner may make sense.
According to several broker networks, LMI can be a strategic tool: getting into the market earlier, capturing growth or yield opportunities, and using smaller deposits more efficiently. As always, it comes down to your strategy and goals.
6. Choose the Right Lender (With a Broker's Help)
Not all banks treat your income and situation equally. Some will count bonuses, overtime, or rental income, others won’t.
A broker can shop around and find the lender who sees your financial picture in the most favourable light. It’s about fit, not just rate.
7. Work With a Broker Early (and Know How to Choose One)
The right broker can make or break your finance strategy. That’s why we created an entire free ebook on this exact topic:
Not all brokers have the same lender access, investment knowledge, or care factor. The earlier you speak to a great one, the more time you have to fix gaps, boost borrowing power, and buy smart.
Want a broker we trust? Just ask us, we’ve teamed up with brilliant ones across Australia who specialise in home buyers, investors, SMSF lending, and more.
8. Optimise Your Loan Structure
Loan Term Length: Longer loan terms = lower repayments = higher borrowing capacity. A 40-year loan term (emerging with some lenders) will increase capacity compared to a 30-year one, at the cost of paying more interest long term.
Refinancing Existing Loans: Refinancing to extend the term (say, from 20 to 30 years) can reduce repayments and boost capacity. This applies to both owner-occupier and investment loans.
Interest-Only vs Principal & Interest: Interest-only loans help cash flow, but banks assess them differently. There’s never a golden solution or cookie-cutter scenario. Everything has its trade-offs.
Real Success Story:
The Power Of A Financial Clean-Up
Matt first came to us frustrated. He was a classic rentvestor, single income, two investment properties under his belt, and he felt completely maxed out. His borrowing capacity was sitting at $280,000, and his bank had told him there wasn’t much else he could do.
But when we dug deeper, we saw a different story.
He had:
- A car loan with 12 months left, costing $1,100 per month
- Three credit cards, two unused ($5k and $25k limits), and one he only used in emergencies
- Investment loans with 21 and 24 years remaining on principal and interest
- No kids, and decent savings
We knew we could reshape his position with a few smart moves.
The result? His borrowing capacity jumped from $280,000 to over $680,000, an increase of more than $400,000.
A month later, Matt secured his third investment property for $582,000. Fourteen months on, it’s now worth $703,000.
If he’d accepted what the bank told him, he would’ve missed that growth entirely. Instead, we built a plan, executed quickly, and gave him a clear path forward, all with less than a day’s worth of actual effort from him.
Sometimes, it’s not about earning more or waiting longer, it’s about getting your financial house in order and being strategic. That’s where the real leverage lies.
Here’s what we did:
- Closed two unused credit cards and reduced the $25k limit to $10k
- Paid out the car loan using savings, freeing up $13,200 per year in repayments
- Refinanced both investment loans back to 30-year terms and switched to interest-only, which also scored him a sharper rate, 0.30% better than what he was paying
- Cleaned up his discretionary expenses and prepped his application with a strong position
The Investor's Edge: Additional Strategies
Rental Income & Yield
Rental income is key for investors. Lenders typically ‘shade’ it to 80-90% to allow for vacancies and expenses. The rental yield can directly impact how much more you can borrow:
- A property yielding 6.2% vs 5.2% might give you an extra $30k-$40k in borrowing capacity
- On a $500k property, that 1% extra yield = $5,000 more income per year
That’s income you’re not pulling from your own pocket.
Dependents: The Hidden Cost
Every child you have can reduce your borrowing capacity by around $50k-$60k. And no, you can’t “eliminate the kids” to increase your capacity; we can help you find another way.
Trust Structures
Investing through a trust has benefits, but one downside is reduced borrowing power. You can’t claim negative gearing benefits personally, so your assessable income is lower. Depending on the lender, borrowing capacity can drop by 20-30% when using a trust.
Questions to Ask Yourself Before Applying for a Loan
- Do I know how much I spend each month, and where my money goes?
- Is my income stable or likely to change?
- Can I clear or reduce any debts before I apply?
- Am I planning any big upcoming expenses (travel, wedding, baby)?
- Have I spoken to a broker who understands my long-term goals?
Work With a Broker Early (and Know How to Choose One)
The right broker can make or break your financial strategy. That’s why we created an entire free ebook on this exact topic:
Not all brokers have the same lender access, investment knowledge, or care factor. The earlier you speak to a great one, the more time you have to fix gaps, boost borrowing power, and buy smart.
Want a broker we trust? Just ask us, we’ve teamed up with brilliant ones across Australia who specialise in home buyers, investors, SMSF lending, and more.
Final Thoughts
Your borrowing capacity isn’t set in stone, it’s a moving number based on how you manage your income, expenses, and debts. If you’re serious about investing, treat borrowing capacity like a resource. Optimise it, track it, and make decisions with your next deal in mind.
Borrowing capacity is more than a number, it’s your leverage, your confidence, and your ability to take action when the right property appears. And it’s something you can influence.
The next property in your portfolio might be just one tidy-up away.
If you’re unsure where to start, or need a broker who understands your goals, book a discovery call with us today.
We’ll talk about where you’re at, what’s holding you back, and whether it’s the right time to engage us, or if a great broker is your next step before you come back for the full journey.
It doesn’t have to be scary… let us show you how.
About Horizon Buyers Agency:
Property Experts Who Walk the Talk
We’re Adam and Marine, the founders of Horizon Buyers Agency. We’re not just qualified property professionals, we’re in the top 1% of property investors in Australia who’ve successfully built our own portfolios through smart finance strategies and strategic purchasing.
Leading a team of down-to-earth professionals who live by example, we’ve successfully executed numerous investment strategies across Australia. With 15+ years of local insider knowledge on the Southern Highlands and South Coast (NSW) regions, we’re passionate about making property investment and home ownership accessible to everyday Aussies without all the stress, mistake-making, or confusion.
We created Horizon because we’ve seen too many people make costly property mistakes or miss out on golden opportunities simply because they didn’t have someone in their corner who truly understood both the market and the finance game. The lifestyle you’re looking for is on your horizon. Let us help you reach it.
