How to Increase Your Borrowing Power in Australia

Borrowing power is not a reward for a good salary. It is the output of a stress test: the lender asks whether your income could still cover the loan if rates were several points higher, after your living costs and every other debt. Most of the levers that move the result sit on the cost side, which is good news, because those are the ones you can change in a few months. This guide explains how the assessment works in Australia in 2026 and the practical steps that tend to lift it.

What is borrowing power?

Borrowing power (or borrowing capacity) is the largest loan a lender is prepared to offer you. It is set by a serviceability assessment: a calculation of whether your income can cover the new repayments, your existing debts and your living expenses, with a margin for things getting worse.

Lenders do this because the law requires it. Under ASIC's responsible lending obligations, credit licensees must make reasonable inquiries about your financial situation and must not offer a credit contract that is unsuitable for you. Banks are also supervised by APRA, whose guidance sets out what a prudent assessment includes.

How do Australian lenders work out how much you can borrow?

Every lender runs its own calculator, which is why the same person can get quite different answers. The building blocks are similar, though, and most come straight from APRA's prudential practice guide APG 223 Residential Mortgage Lending.

Two definitions help. The serviceability buffer is the extra margin added to your interest rate for the test. The Household Expenditure Measure (HEM) is a benchmark of typical household spending that lenders use as a floor when your declared expenses look low.

How much does the 3% buffer reduce borrowing power?

APRA confirmed on 28 May 2026 that the mortgage serviceability buffer remains at 3 percentage points. In practice, a loan offered at 6% is tested at 9%.

On a $500,000 principal-and-interest loan over 30 years, the repayment at 6% is about $2,998 a month. Tested at 9%, the lender needs to see you can afford about $4,023 a month. That gap, roughly $1,000 a month, has to fit inside your income after expenses and other debts. These figures are illustrative, not rate quotes.

The buffer applies on top of whatever rates are doing. The RBA has lifted the cash rate target to 4.60%, effective 30 September 2026, its fourth increase this year. When lenders pass on rate rises, the assessed rate rises with them and borrowing power typically falls.

How much do credit cards reduce borrowing power?

More than most people expect, because lenders look at the limit rather than the balance. APRA's guidance gives the example of assessing card repayments at 3% of the total limit each month. A $10,000 limit you never use is treated as a $300 monthly commitment.

At a 9% assessment rate over 30 years, $300 a month is the repayment on roughly $37,000 of home loan. As an illustration, then, that unused card could cost you in the order of $37,000 of borrowing power. The exact effect varies by lender.

Does HECS-HELP reduce borrowing power?

Usually, yes. APRA's guidance says lenders should consider HELP obligations alongside other debts because compulsory repayments are deducted from gross income and are not available to service a mortgage. APRA's guidance, revised in 2025, gives an example where a lender may reasonably exclude HELP repayments if the debt is expected to be repaid within 12 months. If you are close to that point, it can be worth checking the timing with a lender before you apply.

What is the debt-to-income limit and does it affect you?

Your debt-to-income ratio (DTI) compares your total debt with your gross annual income. Someone earning $120,000 with $720,000 of total debt has a DTI of 6.

From February 2026, APRA limits banks to 20% of new mortgage lending at a DTI of six or more, measured separately for owner-occupier and investor loans. Loans to build or buy new dwellings and owner-occupier bridging loans are exempt. APRA said at the time that the limit is unlikely to restrict owner-occupiers or first home buyers in the near term, and its May 2026 update noted high-DTI lending remained well below the limits. It does mean that a borrower with a high DTI has less room at some lenders than others.

How can you increase your borrowing power?

1. Cut or close credit card limits. Because limits are assessed rather than balances, this is often the fastest change available.
2. Clear small debts. Personal loans, car loans and buy now pay later accounts all count as commitments. Clearing one removes its repayment from the calculation. Debt snowball vs avalanche covers which to target first.
3. Tidy your spending for a few months. Lenders compare your declared expenses with your statements and a benchmark. A clear budget, such as the 50/30/20 rule, makes your real costs easy to show.
4. Check your credit report. Moneysmart notes you can get a free copy of your credit report every 3 months and that errors can be fixed free of charge. Avoid making several credit applications in a short period.
5. Document your income well. Variable income is discounted, so a longer record of overtime, bonuses or self-employed earnings helps. How banks assess your income goes deeper.
6. Look at the loan structure. A longer term lowers the assessed repayment but increases total interest. A co-borrower adds income, along with their debts and expenses.
7. Compare lenders. Policies on income types, HELP debt and expenses differ, which is why Moneysmart suggests getting options from at least two lenders or using a mortgage broker.

To see the effect of these changes before you speak to anyone, NewGen Finance Brokers' borrowing power calculator gives a stress-tested planning estimate using an example rate plus a 3% buffer, calculated in your browser without contact details (NewGen is TodayForge's sister business). Treat any calculator as a first pass; lender policy and documents decide the final number.

Does a bigger deposit increase borrowing power?

Not directly. Serviceability is about income and costs; the deposit changes how much you need to borrow and your loan-to-value ratio. A deposit under 20% usually means lenders mortgage insurance, explained in LMI explained. Moneysmart notes that eligible buyers may be able to buy with a much smaller deposit and avoid LMI through the Australian Government 5% Deposit Scheme, administered by Housing Australia. That helps with the deposit hurdle, but you still need to pass serviceability.

What should you avoid when trying to borrow more?

• Understating expenses or overstating income. Lenders verify both, and a loan sized on wrong figures can leave you in financial stress.
• Applying with several lenders at once. Each application can appear on your credit report.
• Taking on new finance, such as a car loan, in the months before applying.
• Treating the maximum as the target. Moneysmart suggests checking what your repayments would be if rates rose by 2%.
• Emptying your savings for the deposit and leaving no buffer for the first year of ownership.

Should you borrow the maximum a lender offers?

The maximum is what a lender's model says you can service under its assumptions. It does not know about the children you are planning, the career change or the car that will need replacing. Moneysmart's guidance on working out what you can afford to borrow is to be realistic and leave breathing room. Many buyers settle on a loan below their limit and keep an emergency buffer in an offset account.