If you’re thinking about buying a property, one of the first questions you’ll likely ask is: “How much can I borrow?”
While it’s tempting to jump straight into listings, understanding your borrowing power is crucial. It helps you set a clear, realistic budget and avoid surprises during the loan application process.
In this guide, we’ll break down what borrowing power means, how lenders assess it, and what you can do to maximise your chances of approval.
What Is Borrowing Power?
Borrowing power refers to how much a lender is willing to lend you based on your financial situation. It’s calculated using several factors—most importantly your income, expenses, debts, and deposit size.
Every lender uses their own model to assess serviceability, which means your borrowing limit can vary from bank to bank.
How Do Lenders Calculate Borrowing Power?
Lenders typically look at the following:
🧾 Income
Your salary, rental income, government payments, or self-employed earnings form the basis of your ability to repay.
💳 Existing Debts
Credit cards (even unused limits), personal loans, car loans, or HECS/HELP debt are factored into your liabilities.
💸 Living Expenses
Lenders assess your day-to-day costs—based on actual expenses or the Household Expenditure Measure (HEM)—to ensure you can comfortably manage repayments.
💼 Employment Status
Stable, full-time income is often viewed more favourably. Casual, contract, or self-employed income may require extra documentation.
🏦 Deposit Size
The more deposit you have, the lower your loan-to-value ratio (LVR). A lower LVR means less risk for the lender—and can increase your borrowing power.
📈 Interest Rate Buffer
Lenders add a buffer (usually 3%) on top of the current interest rate to test if you could still afford repayments if rates rise.
Example: Borrowing Power Calculation (Illustrative Only)
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You earn $100,000 per year before tax
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You have $10,000 in credit card limits
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You’re applying as a single borrower with no dependents
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You have a $60,000 deposit
Your estimated borrowing power might be between $500,000 and $650,000, depending on the lender and assumptions.
Note: This is a general illustration only. Actual outcomes vary by lender and personal situation.
How to Increase Your Borrowing Power
Here are a few practical tips:
✅ Reduce existing debts
Paying off or lowering credit card limits can significantly improve your serviceability.
✅ Track and reduce discretionary spending
Lenders will assess your actual expenses—cutting back now can make a difference.
✅ Increase your deposit
A larger deposit lowers your LVR and reduces risk in the eyes of lenders.
✅ Review your income structure
If you’re self-employed or earn commission, keeping clean, verifiable financial records is key.
✅ Work with a broker
Brokers understand how different lenders calculate borrowing power—and can help position your application for success.
Should You Rely on Online Calculators?
Online borrowing calculators are a useful starting point—but they often use simplified assumptions. They don’t factor in your full financial picture, lender policy differences, or things like ongoing commitments or credit history.
That’s why speaking to a broker is a smart next step if you’re serious about buying.
Final Thoughts
Knowing your borrowing power is one of the most important parts of buying a home. It helps you shop with confidence, avoid overcommitting, and understand how lenders view your financial health.
✅ Want a more accurate picture?
Speak to a broker at Evolve for a personalised borrowing power assessment. We’ll take the time to understand your full situation and match you with lender options that make sense for your goals.
Disclaimer: This article is for general informational purposes only and does not constitute financial or credit advice. Please consult a licensed broker or financial adviser to assess your individual circumstances.
