Why Your Borrowing Capacity Might Be Lower Than You Think

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.

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.

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.

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