Why your borrowing power may have changed

You might be earning the same income as you were six months ago, but that doesn’t necessarily mean you can borrow the same amount. Understanding your borrowing capacity is an important step before you start your home-buying journey.

A range of factors influence your borrowing capacity, and it can change over time, even if your income hasn’t. Interest rate fluctuations, regulatory settings, credit card limits, living expenses, existing debts, and lender policies can all affect how much a lender may be willing to lend you.

If you’re planning to buy, refinance or invest, it’s worth understanding where you stand before you start making property plans.

Here are some of the key factors that could affect your borrowing capacity.

Higher interest rates can reduce borrowing power

Interest rates have been a major focus in 2026. Multiple cash rate increases have changed how lenders assess borrowing capacity.

When rates rise, the amount you can access may reduce. Lenders need to consider the impact of higher repayments both today and into the future.

When assessing a home loan application, banks also apply a stress test using your interest rate, plus a 3% serviceability buffer. The Australian Prudential Regulation Authority (APRA) requires banks and other authorised deposit-taking institutions to apply this 3 percentage point buffer. For example, if your home loan interest rate is 6%, the bank will assess you on a 9% rate. This lets lenders test whether you can afford future rate hikes, but it also reduces your overall borrowing capacity.

High debt-to-income lending limits

From 1 February this year, APRA introduced limits on high debt-to-income (DTI) lending. The main reason was to prevent a dangerous build-up of risky lending.

The cap limits banks to issuing no more than 20% of new mortgages to borrowers with total debt above six times their gross annual income. This applies separately to owner-occupier and investor lending.

The DTI changes don’t directly reduce your borrowing capacity. Instead, they act as a portfolio cap for banks. If your combined debts (your existing mortgage, car loan, credit cards, and new home loan) push your DTI ratio to six times your gross annual income or more, home loan approval may be harder if your chosen bank has reached its 20% high-DTI limit.

Credit card limits can affect your assessment

Multiple credit cards with high limits can hurt your borrowing capacity, even if you rarely use them or carry no balance. Lenders treat your total available credit as an ongoing financial commitment when they calculate how much they’re prepared to lend.

If you have credit cards you no longer need, consider closing them before you apply for a home loan. This may help improve your borrowing capacity and strengthen your application.

Living expense calculations

The Household Expenditure Measure (HEM) is a standard benchmark lenders use to estimate your living expenses. Banks compare your declared expenses against the HEM.

If your real spending is lower than the HEM yardstick, the bank uses the higher figure anyway. This lowers your borrowing capacity.

Existing debts can reduce borrowing capacity

Multiple monthly debts, such as a car loan, a HECS-HELP debt, and buy-now-pay-later commitments, may impact your borrowing capacity. Lenders look at all committed debt when they assess you as a borrower.

Debt consolidation may also be an option in some situations, but consider it carefully. Rolling short-term debt into a longer loan term can reduce repayments while increasing the total interest you pay.

Different lenders may reach different answers

Did you know lenders may assess borrowing capacity differently? Some might be more open to self-employed borrowers, or offer more flexibility around HECS-HELP debt, for example.

Navigating different lender policies and borrowing requirements can be complex. This is where working with a mortgage broker can help. We can compare lending policies across a range of lenders and help you find options that suit your circumstances.

So, how much can you actually borrow?

Whether you’re looking to buy, refinance or invest, we can help you understand your current borrowing capacity and explore your options. Your borrowing capacity can change as interest rates, lender policies, and your personal circumstances change.

We may even suggest ways to improve your borrowing capacity, so get in touch and let’s get started.