A solid income and a healthy deposit don’t always translate into the borrowing power you expect.
Lenders don’t only ask what you earn. They ask what your income already has to cover. A credit card you rarely use can be assessed as if you were repaying it every month. A car loan with a year left still counts. HELP repayments and the cost of raising kids come out of the same pool.
This guide explains how lenders work out your borrowing capacity, which commitments tend to have the biggest effect, and what to review before you apply.
Key takeaways
- Lenders assess what your income has to support, not just what you earn.
- Many lenders count your full credit card limit as a monthly repayment, even if the balance is zero. On a $20,000 limit, that could reduce what you can borrow by tens of thousands of dollars.
- Car loans, personal loans, HELP repayments and dependants can each reduce borrowing capacity. The size of the effect depends on your income and the lender.
- Lenders test your loan at a higher rate than the one you pay, so a small monthly commitment is multiplied into a large reduction in what you can borrow.
- Different lenders assess the same borrower differently. A broker can compare how they may see your circumstances.
- Borrowing capacity is not your property budget. Plan for rate changes, living costs and a savings buffer.
How a lender works out what you can borrow
Borrowing capacity is the amount a lender believes you can repay under its own assessment rules. It starts with your income after tax, then takes away your living expenses and your existing commitments. What is left has to cover the new loan repayments.
Here is the part most people don’t see. APRA expects banks and other authorised deposit-taking institutions to test new borrowers at an interest rate at least 3 percentage points above the rate on the loan. If your loan rate is 6%, the lender checks whether you could afford it at 9% or more. Some non-bank lenders assess differently.
That higher test rate has a big effect on small commitments. Assessed over 30 years at around 9%, every $1 of monthly commitment reduces the loan a lender will approve by roughly $124. So a $400 monthly repayment doesn’t just trim your capacity by $400. It can take roughly $50,000 off the loan size.
The examples below use that simple rule. They are our own illustrations, not a lender assessment, so treat them as a guide to the scale rather than a prediction for you.
Credit card limits: the balance isn’t what counts
This is the one that surprises people most. You might have a $20,000 limit, pay the card off in full every month and owe nothing today. Many lenders still assess the full approved limit, because you could use it at any time.
Lenders convert the limit into an assumed monthly repayment. The percentage varies, and around 3% of the limit is commonly used. On a $20,000 limit, that is about $600 a month, which at the rule above takes roughly $75,000 off borrowing capacity. A $10,000 limit would take about $37,000.
If you no longer need a high limit, reducing it or closing the card may help. Talk it through first, because the right move depends on your wider position and the timing of your application.
Car loans and personal loans
A car repayment can feel perfectly manageable, and you may never have missed one. The issue is that it comes out of the income available to service your new mortgage.
On the same basis, a $650 monthly car loan reduces capacity by roughly $81,000. A $400 monthly personal loan reduces it by roughly $50,000. Small debts count, including store finance and buy now, pay later accounts. Look at the monthly commitment attached to each debt, not only the balance.
Paying out a car loan before you buy won’t always be the best move. Using $20,000 of your deposit to clear it could leave you short for stamp duty, legal costs, inspections, moving costs and an emergency buffer. The better question is which option leaves you in the strongest overall position.
| Commitment | Assumed monthly amount | Approximate reduction in borrowing capacity |
|---|---|---|
| $10,000 credit card limit | $300 (3% of limit) | $37,000 |
| $20,000 credit card limit | $600 (3% of limit) | $75,000 |
| $400 a month personal loan | $400 | $50,000 |
| $650 a month car loan | $650 | $81,000 |
Each example is a simplified illustration at an assumed assessment rate of about 9% over 30 years, principal and interest, with one commitment at a time. Don’t add the figures together. Real lender assessments also take income type, tax and living expenses into account, so your result will differ.
HELP debt
HELP (HECS) debt doesn’t come with a fixed monthly repayment. The compulsory repayment is based on your income, so the effect on your borrowing capacity tends to grow as you earn more.
Lenders don’t all treat it the same way. Some may ignore or reduce the HELP repayment when the balance is small, or when it will be paid off within a short time (some lenders use about 12 months). Others count it in full. The cut-off amounts and rules differ between lenders and change over time, so it pays to check before you assume either way.
Paying the balance down can help, but it uses money that might otherwise be your deposit or buffer. If your balance is close to a lender’s cut-off, a small payment could make a difference. It’s worth asking a broker which lenders would treat your HELP debt favourably before you decide.
Children and other dependants
You can’t pay this one off. Dependants raise the living expense benchmark lenders use, rather than adding a repayment, so there is no loan to clear. The effect can be significant and varies between lenders and households.
For growing families that creates a real tension: the need for a bigger home grows at the same time as borrowing capacity falls. It’s a good reason to check your numbers before settling on a price range.
Interest rates and your borrowing capacity
Rates matter too, and they have moved. The RBA lifted the cash rate to 4.60% on 29 September 2026, effective 30 September, its fourth increase this year.
Because lenders test your loan at a higher rate, a rate rise reduces borrowing capacity on top of increasing your repayments. As a rough guide, using the same simple model, each 0.25 percentage point increase in the assessment rate reduces capacity by about 2%. On a $600,000 capacity that is around $13,000.
You can’t control the RBA. You can control a card limit you don’t use, a loan you could clear, or a HELP balance you don’t understand yet. Those are things you can look at today.
Different lenders, different answers
An online calculator gives you one view. Lenders differ in how they treat living expenses, credit cards, HELP, overtime, bonuses, self-employed income and existing debts. The same borrower can get noticeably different results from different lenders.
A broker can look at your circumstances and compare how different lenders may assess them. That doesn’t guarantee approval. It means you know where you stand before you commit to a property.
Five things to review before you apply
- Every credit card. Write down each limit, not just the balance, and ask whether you still need it.
- Your car finance. Check the balance and the monthly repayment, and whether clearing it makes sense given the cash you’ll need elsewhere.
- Personal loans and other debts. Include store finance and buy now, pay later accounts.
- Your HELP debt. Know the balance and how the repayment is worked out on your income.
- Your borrowing capacity. Get it checked early, before you fall for a property.
Borrowing capacity is not your property budget
A lender might say you can borrow a certain amount. That doesn’t mean you should. Your budget also needs to allow for rate changes, household costs, emergency savings, kids and school costs, and the occasional unexpected bill. A home loan should fit your life, not just a lender’s maximum.
Frequently asked questions
Does an unused credit card affect borrowing capacity?
It can. Many lenders assess the approved limit as a monthly repayment rather than looking at the balance. On a $20,000 limit, assuming 3%, that is about $600 a month.
How much can a car loan reduce borrowing power?
It depends on your income and the lender. As an illustration, a $650 monthly repayment could reduce capacity by roughly $81,000 on the assumptions above.
Does HELP debt affect borrowing power?
Yes, it can. The compulsory repayment comes out of your income, and the effect depends on your income and how the lender assesses it. Some lenders ignore or reduce HELP when the balance is small or close to being paid off, while others count it in full.
Does a bigger deposit increase borrowing power?
Not much. Lenders mainly test whether you can afford the repayments on your income. A bigger deposit raises the price you can pay and may help you avoid lenders mortgage insurance, but it doesn’t change the loan amount much.
Should I close my credit card before applying?
It may help if you have an unused or unnecessarily high limit. Talk to your broker first, so you know the likely benefit and the timing before you make changes.
Is my maximum borrowing amount what I should spend?
No. It’s a lender’s assessment. Your own budget should allow for lifestyle, goals, savings and future changes.
Talk it through with Nifty Lending Services
At Nifty Lending Services we work with buyers and homeowners Australia. We can look at your commitments, explain how different lenders may assess them, and help you work out what to review before you apply, so you know where you stand before you start looking.
Call on 0431 955 262, email mannss@niftylending.com.au, or send us a message through the contact page to arrange a time to talk.
DISCLAIMER: General information only. Not personal financial advice. Your circumstances may vary. The examples in this article are simplified illustrations prepared by Nifty Lending Services using stated assumptions. They are not a lender assessment, offer, pre-approval or guarantee of finance. Interest rates, lender policy and regulatory expectations change. Nifty Lending Services, Credit Representative 540065.
Sources
Reserve Bank of Australia, cash rate decisions: https://www.rba.gov.au/monetary-policy/rba-board-decisions/
APRA, Strengthening residential mortgage lending assessments (serviceability buffer): https://www.apra.gov.au/strengthening-residential-mortgage-lending-assessments
