How to Increase Your Borrowing Capacity in Australia (What Actually Works)

I remember sitting across from a couple a few years back who had done everything right. Solid deposit saved. Stable jobs. No credit card debt. They were ready to buy their first investment property.

Then the bank came back with a number that was about $150,000 less than what they needed.

They were gutted. And honestly, I got it completely.

Here is the thing: getting into the property market is not just about having enough for a deposit. Your borrowing capacity, how much a lender will actually let you borrow, shapes everything. It determines what you can buy, where you can buy, and whether you can build a portfolio over time.

The good news is that borrowing capacity is not fixed. There are legitimate, practical things you can do to improve it before you walk through a lender’s door. Let me walk you through what actually makes a difference.

What Is Borrowing Capacity and Why Does It Matter?

Your borrowing capacity is the maximum amount a lender will loan you based on your financial situation. They look at your income, your expenses, your existing debts, and a range of other factors to work out whether you can comfortably afford to repay.

In Australia, lenders are also required to stress-test your application. They assess whether you could still afford repayments if interest rates rose by around 3% above your actual rate. The Australian Securities and Investments Commission’s MoneySmart guide covers what lenders assess in detail. So if you are being offered a rate of 6.5%, the bank is effectively testing you at 9.5%. That buffer caps how much you can borrow, and it is significant.

On top of this, as of February 2026, APRA introduced a rule that limits banks to writing no more than 20% of new home loans to borrowers taking on debt that is six times their income or more. For buyers in Sydney and Melbourne, where prices are high relative to incomes, serviceability is tighter than it has been in years.

Understanding this framework matters. You cannot change interest rates. You cannot change APRA’s rules. But you can change your financial profile, and that is where the real opportunity sits.

How Existing Debts Drag Down Your Borrowing Capacity

This is the single biggest lever most people overlook. Every existing debt reduces how much a bank will lend you, not just by the amount outstanding, but by a multiplied figure because the bank is calculating the ongoing repayment impact.

A $500-per-month personal loan repayment can reduce your borrowing capacity by around $155,000. That is a substantial hit.

HECS debt is another one that catches people off guard. Most people think of their student loan as a low-interest, manageable obligation, and in isolation it is. But from a borrowing capacity perspective, a HECS debt can reduce what you can borrow by up to $84,000 for a single income earner on $100,000 a year. It is one of those invisible drags that a lot of first-time buyers simply do not account for.

And that is where most people come unstuck. They focus on saving the deposit and forget to look at what is quietly eroding their borrowing power on the other side.

If you are serious about improving your borrowing capacity, start by mapping out every debt you carry: personal loans, car loans, HECS, buy-now-pay-later accounts, anything. Then work out a plan to reduce or eliminate the highest-impact ones before you apply.

If you are weighing up whether to put your savings toward a deposit or toward clearing debt first, that is exactly the kind of calculation worth doing carefully. There is a similar trade-off with LMI in our post on whether to save a 20% deposit or pay LMI.

Reduce Your Credit Card Limits

This one surprises most people. Lenders do not assess your credit card debt based on what you actually owe. They assess it based on your credit limit, as if you had maxed it out.

Every $10,000 of credit card limit reduces your borrowing capacity by approximately $64,000. Let that sink in for a second.

If you have a $20,000 limit across two cards that you barely use, you have effectively borrowed $128,000 less in the eyes of the bank, even though your balance is near zero. You are being penalised for having access to credit you are not even using.

The fix is simple. Close the cards you do not need, or reduce the limits to the minimum you actually require. Do this a few months before applying so it has time to be reflected in your credit profile.

Get Your Living Expenses Under Control

Lenders look at your living expenses to assess serviceability. They often compare what you declare against a benchmark called the Household Expenditure Measure (HEM), which is a standardised estimate of typical household spending based on your income and family size.

If your declared expenses are significantly higher than the HEM, it raises questions. If they are in line or below, it strengthens your application.

Look, I am not suggesting you be dishonest. What I am saying is that the three to six months before you apply for a loan is a genuinely good time to tighten your spending. Cancel unused subscriptions. Cut back on dining out. Avoid big discretionary purchases. Banks look at your actual bank statements and transaction history, so this is not just about what you write on the form. It is about what your account actually shows.

This applies to joint applicants too. If you are applying with a partner, both of your spending patterns are under scrutiny.

Increase Your Income

A $30,000 increase in annual income can translate to roughly $162,000 more in borrowing capacity. That is not a small number.

If you are close to a pay review, it might be worth timing your application after that conversation with your employer. If you have a side income, whether rental returns, freelance work, or a second job, make sure you have proper documentation to support it. Lenders want to see consistency and evidence, not just a number on your application.

For property investors specifically, rental income from existing properties can contribute to serviceability. This is one of the reasons that building a data-led property portfolio from early on makes sense. Each property you add, if structured well, can help rather than hinder your next purchase.

Save a Larger Deposit

A bigger deposit does two things. It reduces the amount you need to borrow (which affects your repayments) and it keeps more lenders available to you, some of whom have better terms or more flexible serviceability assessments.

There is also a practical threshold at 20%. Borrowing more than 80% of the property value triggers Lenders Mortgage Insurance (LMI), which is an additional cost. Your deposit size and your borrowing capacity together shape which lenders and products are even available to you.

For some buyers, paying LMI and getting into the market sooner makes financial sense. For others, pushing to 20% is worth the extra saving time. Right call depends entirely on your situation.

What a larger deposit also signals to lenders is financial discipline, and that counts for something.

Work With a Mortgage Broker, Not Just One Bank

One of the most common mistakes I see is people walking into their own bank, getting knocked back or offered a disappointing figure, and assuming that is the final answer.

It is not.

Different lenders have different formulas. Some are more generous with investors. Some treat HECS debt differently. Some have products that suit your income type better, whether you are PAYG, self-employed, or a contractor.

A good mortgage broker has access to dozens of lenders and knows which ones are likely to assess your borrowing capacity most favourably. They can run the numbers across multiple options, help you understand which debts to clear first, and guide you on timing your application to get the best outcome.

This is especially relevant if you are considering a rentvesting strategy, where your financial structure needs to work across both a rental situation and an investment loan. A broker who understands property investment (not just standard home loans) is worth its weight in gold.

Understand What Actually Affects Your Borrowing Capacity

Here is what most people get wrong. They spend their energy worrying about things they cannot change: interest rates, property prices, APRA rules. And they overlook the things they can actually influence.

Your debt position. Your credit limits. Your spending patterns. Your income documentation. Your timing.

None of these are complicated on their own. But getting all of them right at the same time, in the months before you apply, is where a lot of buyers fall short. Either they move too fast and apply before cleaning up their profile, or they overthink it, take too long, and the market moves on.

The goal is not perfection. It is positioning. You want to walk into a lender’s assessment in the best financial shape you can manage. Right?

Timing Your Application Well

A few practical notes on timing.

Get your tax returns in order. If your most recent lodgement reflects a lower income year (say you changed jobs or had a period out of work), lenders may average your last two returns. If you can wait until a stronger return is on file, that can make a real difference.

Do not make major financial moves in the weeks before applying. Opening new accounts, making large purchases on credit, or switching jobs can all trigger questions or delays in the assessment process.

And check your credit report before the bank does. You can access it for free through services like Equifax or Experian. Look for any defaults, errors, or accounts you had forgotten about. These can affect both your borrowing capacity and the interest rate you are offered.

The Bottom Line

Getting your borrowing capacity right is one of those things that feels like paperwork and admin until you realise it is actually the foundation of your entire property strategy. The difference between a poorly structured application and a well-prepared one can be hundreds of thousands of dollars.

That gap determines whether you can buy the property that actually builds wealth, or whether you settle for something that does not quite fit the brief.

I have seen this play out dozens of times. The people who take the time to clean up their financial profile before they apply are the ones who get the options. The ones who do not end up compromising.

If you are planning your next purchase and want to understand how these principles apply to building a portfolio over time, take a look at whether a buyers agent is worth it to get your strategy right from the start.

Spend the time upfront. It is worth it.