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Why Your Borrowing Capacity Might Be Lower Than You Think

Wed, 09 Sep 2026 02:13:22 GMT

Why Your Borrowing Capacity Might Be Lower Than You Think

If you got a home loan pre-approval a year or two ago and are only now getting back into the market, brace yourself: the number a lender will approve today could be noticeably smaller than what you were offered back then even if your income, savings and job haven't changed at all. This catches a lot of buyers off guard, and it's one of the most common surprises we see walk through the door. Here's why it happens, and what you can actually do about it.

It's Not About You, It's About the Rules Lenders Use

Borrowing capacity isn't a fixed number tied to your salary. It's calculated using a formula that factors in your income, expenses, existing debts, and critically an assessment (or “buffer”) rate that's higher than the actual interest rate you'll pay. Lenders use this buffer to make sure you could still afford repayments if rates rose further.

When official interest rates climb, that buffer climbs with it. So even though your real repayment might only go up moderately, the assessed repayment used to test your capacity goes up by more, which shrinks the maximum loan amount you qualify for.

Add to that:

Rising cost-of-living expenses (groceries, insurance, utilities) are now factored more heavily into lender expense benchmarks than they were a couple of years ago.
Existing debts —credit cards, car loans, and “buy now, pay later” accounts—are weighed more conservatively, even if you rarely use them.
Casual or variable income is often shaded down further than it used to be, as lenders apply more caution to inconsistent earnings.

None of this means something is wrong with your finances. It means the goalposts have moved.

With Sydney's property market shifting and more listings coming onto the market this spring, buyers who assume their old borrowing power still applies risk one of two outcomes: missing out on a property they thought they could afford, or having a contract fall through at finance approval stage. Neither is a great position to be in once you've found a home you like.

The fix isn't complicated it's just easy to overlook. Get a fresh assessment before you start seriously house-hunting, not after you've made an offer.

Why This Matters Right Now

A lower borrowing capacity isn't necessarily the end of the conversation. There are genuine levers you can pull:

Pay down or close unused credit cards and buy-now-pay-later accounts —even undrawn limits can count against you.
Reduce discretionary spending in the 3–6 months before applying, since lenders often review recent bank statements.
Consider a longer loan term or a different lender, since servicing calculators vary meaningfully between institutions.
Get a joint borrower or guarantor involved, if that's realistic for your situation.
Run the numbers with a broker before you apply, rather than guessing based on what a bank's online calculator tells you; those tools rarely reflect a lender's full assessment criteria.

Our borrowing capacity calculator is a useful starting point to get a rough figure, and our loan repayment calculator can help you see how different loan amounts and terms affect your monthly repayments.

Practical Ways to Improve Your Position

Falling borrowing capacity doesn't only affect new buyers. If you're planning to refinance, consolidate debt, or access equity for a renovation or investment purchase, the same tightened assessment rules apply to you too. It's worth checking your position on our refinance page before assuming your existing equity will stretch as far as it used to.

If You're Already a Homeowner

Why has my borrowing capacity dropped if my income hasn't changed?

Lenders assess your capacity using a buffer rate above the actual interest rate. When rates rise, that buffer rises too, which reduces the maximum amount you're assessed as able to borrow regardless of whether your income has moved.

Do all lenders calculate borrowing capacity the same way?

No. Each lender applies its own combination of assessment rates, expense benchmarks, and treatment of existing debts, which is why the same person can be approved for quite different amounts across different banks.

Can closing a credit card actually increase how much I can borrow?

Often, yes. Lenders typically count the full available limit on credit cards and buy-now-pay-later accounts against you, even if you rarely use them or pay them off in full each month.

Should I get a new pre-approval if mine is more than a few months old?

Generally yes. Lending criteria and assessment rates can change relatively quickly, so an older pre-approval may no longer reflect what you'd actually be approved for today.

Frequently Asked Questions

Sydney Property Prices Are Falling, Is Now the Time to Buy or Wait?

Tue, 08 Sep 2026 00:50:14 GMT

Sydney Property Prices Are Falling, Is Now the Time to Buy or Wait?

For the first time in years, Sydney buyers are hearing something unfamiliar: prices are coming down, not up. After a run of rate rises and cooling demand, the city's property market has shifted into what many analysts are now calling a genuine buyer's market. But falling prices don't automatically mean it's the right time to buy and waiting isn't risk-free either. Here's what's actually happening, and how to work out where you stand.

What's Driving the Slowdown

Sydney's median dwelling value has dropped noticeably over the past quarter, and values now sit well below their early-2026 peak. A few forces are behind it:

Higher interest rates have reduced how much buyers can borrow, which flows directly into what they can afford to pay.
Investor activity has slowed , easing some of the competitive pressure that used to push prices up at auction.
Listings are rising as spring selling season kicks in, giving buyers more choice and more leverage than they've had in a while.
Cost-of-living pressures are making buyers more cautious, which means properties are sitting on the market longer before selling.

Put together, these conditions have tipped the balance of power away from sellers and toward buyers at least for now.

A softer market sounds like good news if you're trying to buy, but it comes with its own complications:

Your borrowing power may have shrunk. Even if your income hasn't changed, higher rates mean banks now assess your capacity differently than they did a year or two ago. The number you could borrow back then may not be the number you can borrow today. Running your figures through our borrowing capacity calculator is a good first step before you start looking seriously.

Valuations can move faster than contracts. If you're buying off-the-plan or waiting on finance approval, a bank valuation that comes in below your purchase price can leave a gap you need to cover in cash. It's worth understanding this risk before you sign anything.

Timing the exact bottom is close to impossible. Trying to pick the lowest point of a downturn is a guessing game even for economists. Chasing a “perfect” price point often means missing genuinely good opportunities that come up along the way.

Why “Falling Prices” Doesn't Mean “Easy Decision”

There isn't a single right answer, because it depends on your situation, not just the market:

If you're financially ready, have a stable deposit, and plan to hold the property long-term, a softer market can work in your favour less competition, more room to negotiate, and sellers who are more open to reasonable offers.
If your income or job security feels uncertain, or your deposit isn't quite there yet, waiting and using this time to strengthen your position may make more sense than rushing in.
If you're an investor, it's worth weighing this alongside broader changes to property investment settings; see our earlier piece on negative gearing changes and what they could mean for investors .

The most useful thing you can do right now isn't predicting the market; it's understanding your own numbers clearly enough to act quickly when the right property comes along.

So Buy Now, or Wait?

Whether you're leaning toward buying now or holding off, getting a clear, current picture of your borrowing capacity and loan options puts you in a stronger position either way. Explore our residential home loan options or contact us for a no-obligation chat about where you stand.

Talk to a Broker Before You Decide

Is Sydney's property market actually a buyer's market right now?

Many of the usual signs point that way: falling values, more listings, and properties taking longer to sell. That said, conditions vary by suburb and property type, so it's worth checking local trends for the specific area you're interested in.

Will my borrowing capacity be the same as it was last year?

Not necessarily. Interest rate rises change how lenders assess serviceability, even if your income hasn't changed. Getting an updated assessment is the only reliable way to know your current position.

Should I wait for prices to fall further before buying?

It's very difficult to predict exactly when a market bottoms out. Rather than trying to time it perfectly, focus on being finance-ready so you can act when a property that suits you comes up.

Does a falling market affect people who already have a mortgage?

It can affect your equity position, particularly if you're planning to refinance or use equity for another purchase. If that applies to you, it's worth reviewing your options—our refinance page is a good starting point.

Frequently Asked Questions

Budget Announcement Explained - Negative Gearing Changes: What It Could Mean for Australian Property Investors

Thu, 21 May 2026 00:49:56 GMT

BUDGET ANNOUNCEMENT EXPLAINED - NEGATIVE GEARING CHANGES: WHAT IT COULD MEAN FOR AUSTRALIAN PROPERTY INVESTORS

The country’s property sector re-emerges on the national agenda after more news broke about the negative gearing changes in the latest federal budget. To investors, homeowners, first-home buyers and other stakeholders, these suggested changes may reform the manner in which Australians own, retain and invest in property in the next few years.

Although negative gearing is widely regarded as one of the most potent tax tools property investors already have available to them, the government’s proposed amendments would focus investor power on new housing developments and affordability, targeting more popular sectors in this age of growing Australian inflation and consumer prices.

But you don’t really need to wait around to find out what in fact is changing, and how does that change your future residential planning?

Understanding Negative Gearing

Negative gearing is a financial strategy where the costs of owning an investment property exceed the rental income it produces.

Such costs can include loan-interest repayments .

Council rates.
Insurance.
Property management fees.
Maintenance and repairs.

In fact, when a property generates a loss, investors can typically claim the loss as a deductible tax adjustment against their personal income.

But this approach and practice has allowed Australians to accumulate long-term wealth through their properties, while relieving some of the financial pressure that comes with owning an investment property, for years.

But detractors say that negative gearing has also played a role in skyrocketing property values and greater competition for buyers entering the market.

What In the Budget has Been Announced?

Changes to how negative gearing is applied in the future have been proposed by the government.

The proposed changes:

Negative gearing will be scrapped and will only apply to new builds from July 2027.
The capital gains tax discount of 50% ends in July 2027.

Other investment properties acquired prior to the changes are probably covered under grandfathering rules. So in layman’s terms, future investors may not have and will not enjoy the same tax benefits when buying existing homes, while newly constructed properties will continue to receive support.

The government says this is intended to promote more housing construction, lifting pressure on an already challenging housing market in Australia.

The likely impact will vary – certainly – according to the sort of property you are buying and whether an investor wants to stay in it longer than he or she intends. And Investors Buying Established Homes .

Investors buying existing properties following the reforms will likely have:

Reduced tax benefits.
Higher holding costs.
Lower after-tax returns.
Greater emphasis on rental yield.

This will cause some buyers to change their investment strategy or their own borrowing expectations .

What Might This Mean for Property Investors?

On the other hand, new homes are anticipated to receive even more negative gearing support.

This may lead to rising demand for the following:

House and land packages .
Off-the-plan apartments.
Brand-new townhouses.
Investment-focused developments .

Developers and builders might also benefit from a broader swathe of investors moving towards new construction opportunities.

Buyers Buying New Real Estate

Housing affordability has emerged as one of Australia’s toughest financial issues.

The following challenges are common among first-home buyers :
Rising property prices.
Increasing rental costs.
Higher and growing interest rates .
Limited housing supply.

The government thinks that restricting negative gearing on established homes could help equalise the playing field for investors versus owner-occupiers.

Changes proposed between this proposal and now have widespread mixed and contradictory thoughts in the property industry.

But any such proposed changes will take place with respect to a number of factors — interest rates, migration, construction activity and general market confidence, to name a few.

What Do These Proposed Changes Mean For Housing Affordability?

At Home & Commercial Finance, we allow clients all over NSW to cope with the changing lending environment with our custom finance solutions based on their objectives.

Whether you are:

Buying your first investment property .
Refinancing your current loan .
Exploring commercial finance.
Developing your property portfolio.
Investigating new-build investment projects.

We can help you take it to the next level and grow in a fluctuating market.

How Home & Commercial Finance Can Assist

What's negative gearing in the Australian market?

Negative gearing is when an investment property costs more to own than the income it generates, and investors can claim the loss as tax-deductible.

Are the new negative gearing changes now in effect?

If the proposed reforms are instituted, they are likely to kick off in July 2027.

So will existing investment properties be hit?

Investment properties purchased before the reforms will likely be protected under grandfathering provisions.

Under what terms is the government changing negative gearing?

The reforms are supposed to stimulate new housing construction for first-home buyers, making housing more affordable .

How will these changes affect property investors in NSW?

Yes. Investors based in NSW and in Australia may need to revisit their strategies depending on how the legislation's end result may come to be determined.