A lender may like your deposit, your job and the property you have found, yet still offer less than you expected. That is because borrowing power is not simply a percentage of your income. If you are wondering how to improve borrowing power, the most useful place to start is with the regular commitments and spending that shape your household budget.
For many buyers, particularly those looking to buy their first home or move to a larger one, borrowing capacity can feel like a moving target. The good news is that several factors are within your control. Small changes made well before you apply can make your application clearer, stronger and less stressful.
What lenders mean by borrowing power
Borrowing power, also called borrowing capacity, is the amount a lender believes you can afford to repay. They look beyond your salary to assess whether repayments would remain manageable if interest rates rose or your circumstances changed.
Most lenders assess your income, existing debts, credit history, household expenses, savings and dependants. They also apply their own interest-rate buffer when calculating repayments. This means they test your finances at a rate higher than the one advertised on your loan, which can make the final figure look more conservative than your own budget calculation.
Every lender has slightly different policies. One may take a more favourable view of overtime or commission income, while another may be more comfortable with a particular type of employment. This is why a pre-approval from one lender is useful, but it is not the only possible outcome.
Start with the commitments that reduce capacity
Existing debt usually has the fastest and clearest effect on borrowing power. A car loan, personal loan, credit card, buy now pay later account or HELP debt can all reduce the amount available for mortgage repayments.
Credit card limits deserve particular attention. Even if you pay the balance in full each month, a lender may assess a monthly repayment based on the full available limit, not what you currently owe. Reducing a $10,000 limit to an amount you genuinely need, or closing a card you no longer use, may help more than simply leaving the balance at zero.
Car finance can also be a major factor. It does not always mean you need to sell your vehicle or avoid finance altogether. But if you are planning to buy a home within the next year, taking on a large vehicle loan can materially change what you can borrow. Consider whether delaying an upgrade, buying within a lower budget or paying down the finance first better supports your home-buying plans.
Buy now pay later services can appear minor because individual payments are small. Several active accounts, however, can suggest ongoing reliance on short-term credit. Pay out what you can, close accounts you do not need and avoid opening new facilities while preparing a home loan application.
How to improve borrowing power through spending
Lenders review living expenses because a mortgage must fit alongside the real cost of running your life. Your transaction accounts may be reviewed, so it helps to make your spending pattern match the budget you present.
This is not about cutting every coffee or pretending your family never eats out. A realistic budget is more credible and more likely to work after settlement. Focus instead on repeated costs that do not add much value: unused subscriptions, expensive mobile plans, frequent food delivery, duplicate insurance policies or automatic purchases you have stopped noticing.
Set aside a few months to track what actually leaves your accounts. Group spending into essentials, discretionary costs and annual bills. This often reveals room to save without making day-to-day life miserable. It also gives you a more confident answer if a lender asks about a particular expense.
For couples, discuss finances openly before applying. Separate spending habits still affect a joint application, and a shared plan avoids surprises. Agreeing on a savings target, debt repayments and a reasonable weekly spending amount can make a meaningful difference.
Strengthen your income position
A higher and more reliable income can improve borrowing capacity, but lenders look closely at how that income is earned. Full-time base salary is generally straightforward. Casual work, self-employment, overtime, bonuses, commissions and rental income may require a longer track record and supporting documents.
If a pay rise, new role or increase in contracted hours is likely, timing matters. It may be worth waiting until the change is documented and appears on your payslips before submitting an application. Changing jobs is not automatically a problem, particularly when moving within the same industry, but lenders may want evidence that your new income is stable.
Self-employed borrowers should keep business and personal finances well organised. Up-to-date tax returns, financial statements and a clear record of income can make assessment easier. Reducing taxable income may be sensible for some business reasons, but it can also reduce the income a lender uses for serviceability. This is a situation where tailored accounting and lending advice is valuable.
If you have a partner, applying together can increase capacity because both incomes are included. It can also increase shared responsibility for the loan, so it should suit your legal and financial arrangements. A guarantor or family support may help with a deposit in some circumstances, but it does not remove the need to show you can afford the repayments.
Protect your credit record and application timing
Your credit report tells lenders how you have managed credit in the past. Late payments, defaults and multiple recent applications can make approval more difficult, even if your income is healthy.
Check your report before you need finance, rather than after a lender raises a concern. Correct any errors and bring overdue accounts up to date. Avoid applying for several credit products in quick succession. Each application can leave an enquiry, and a cluster of enquiries may look like financial pressure.
It is also wise to avoid big financial changes between pre-approval and settlement. Do not take out a new car loan, open a store card, switch to a lower-paid role or move large unexplained amounts between accounts without discussing it first. A lender may reassess your situation before the loan is finalised.
Build savings that tell a good story
A larger deposit can reduce the loan amount and may help you avoid lenders mortgage insurance, depending on the lender and loan-to-value ratio. Just as useful is a consistent savings pattern. Regular transfers into a savings account show that you can live within your means and manage a future mortgage commitment.
Try to keep a buffer after paying your deposit and purchase costs. Buying a home also brings moving costs, council rates, strata fees where relevant, repairs and the occasional surprise. Using every dollar to settle can leave a household financially exposed from day one.
Gifted funds can be accepted by many lenders, but they usually need to be documented. If family is helping, raise it early so there is time to confirm whether the money is a gift or loan and what paperwork is required.
Choose a loan structure that fits, not just the biggest number
Improving borrowing power should not become a race to borrow the maximum. The amount a lender is willing to approve and the amount that lets you sleep well are not always the same.
Think about likely changes over the next few years. You may be planning children, reduced working hours, study, a renovation, an investment property or a move away from the city. A smaller loan with breathing room can provide more flexibility than stretching to the upper limit.
A mortgage adviser can help compare lender policies and model different scenarios before you make an offer. That includes looking at how clearing a debt, lowering card limits or waiting for a pay rise could affect your options. The right approach depends on your income, household costs and how soon you want to buy.
Give yourself time where possible. A focused three to six months of paying down debt, building genuine savings and keeping your accounts orderly can put you in a much stronger position. More importantly, it helps you buy with a repayment plan that supports the life you want after you get the keys.
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