Understanding Your Borrowing Power in 2024

What is Borrowing Power?

Your borrowing power is the maximum amount a lender will let you borrow based on your financial situation. Understanding this helps you search for properties within your realistic budget.

Key Factors Lenders Consider

1. Income

Your salary is the starting point. Lenders also consider:

Overtime and bonuses (usually at a discounted rate)

Rental income from existing properties

Investment dividends

Government payments

2. Existing Debts

All debts reduce your borrowing power:

Personal loans

Car loans

Credit card limits (even if unused!)

HECS/HELP debt

Buy now, pay later accounts

Tip: Close unused credit cards before applying. A $10,000 credit limit can reduce your borrowing power by $30,000-$50,000.

3. Living Expenses

Lenders assess your living expenses against the Household Expenditure Measure (HEM). If your actual expenses are higher, they'll use those figures instead.

4. Deposit Size

A larger deposit means less borrowing required. It can also help you avoid Lenders Mortgage Insurance (LMI), which is typically required for loans above 80% LVR.

The Buffer Rate

Since 2021, lenders must assess your ability to repay at 3% above the actual interest rate. This "buffer" significantly reduces borrowing power compared to pre-2021 calculations.

How to Maximise Your Borrowing Power

1. Pay down existing debts 2. Cancel unused credit cards 3. Reduce discretionary spending (3 months before applying) 4. Consider a longer loan term 5. Add a guarantor if possible

Get an Accurate Assessment

Online calculators give rough estimates but often miss important factors. As a broker, I have access to multiple lenders and can find those with policies that suit your situation. Let's chat about your real borrowing power.