Proven Tips to Improve Your Borrowing Capacity

What Borrowing Capacity Actually Measures

Borrowing capacity is the maximum amount a lender will advance based on your income, expenses, existing debts and the serviceability buffer they apply. Every application is assessed at an interest rate at least 3.0 percentage points above the actual loan product rate, regardless of whether you choose a variable or fixed rate product.

A buyer in Brunswick earning $95,000 per year with no dependents and minimal debt might expect to borrow around $550,000 to $650,000 depending on their monthly expenses and the lender's policy. If that same buyer has a $15,000 car loan and spends $400 per month on a buy-now-pay-later account, the borrowing capacity could drop by $80,000 to $100,000. The difference comes down to how lenders calculate surplus income after accounting for living expenses and the buffer rate.

Lenders assess your ability to service a home loan by comparing your net income against committed expenses, declared living costs, and a minimum household expenditure measure. APRA requires all authorised deposit-taking institutions to apply a minimum 3.0 percentage point buffer when testing your ability to repay. If you apply for a variable rate loan at 6.2%, the lender will assess your capacity to repay at 9.2%. This buffer has been in place since October 2021 and applies to all new borrowers.

Income That Strengthens Your Application

Base salary is the foundation of any serviceability calculation, but lenders also accept regular overtime, allowances, bonuses and certain forms of casual or contract income. The key is consistency and evidence. A casual worker in Brunswick's hospitality sector earning $65,000 per year across two employers can often use that income in full if they provide 12 months of payslips and tax returns showing stable earnings.

Commission and bonus income are typically assessed at a discounted rate or averaged over two years. If you earn $80,000 in base salary and receive a $20,000 annual bonus, most lenders will include between 50% and 80% of the bonus depending on how long you have been in the role and whether the bonus is discretionary. Self-employed applicants are assessed on their taxable income after deductions, which means minimising tax can reduce borrowing capacity. In our experience, business owners often need to allow two full financial years of higher declared income before applying for a home loan if they want to maximise their borrowing position.

Rental income from an investment property is usually assessed at 80% of the gross rent to allow for vacancy and maintenance. If you receive $450 per week in rent, lenders will typically apply $360 per week to your income. Centrelink payments, including Family Tax Benefit, Carer Payment and Parenting Payment, are accepted by most lenders, though the treatment varies depending on the payment type and whether it is means-tested.

Why Debt-to-Income Limits Affect What You Can Borrow

From 1 February 2026, APRA activated a lending limit that restricts each authorised deposit-taking institution to lending no more than 20% of new owner-occupier loans and 20% of new investor loans to borrowers with a debt-to-income ratio of six times or greater. The limit applies separately to owner-occupier and investor portfolios and is measured quarterly at the institution level.

If your gross household income is $120,000 and you are seeking to borrow $750,000, your DTI ratio is 6.25. That loan may still be approved if you meet the lender's serviceability assessment and the institution has capacity within its 20% allowance, but it places you in a restricted category. Non-authorised deposit-taking institution lenders are not subject to this limit, which has led to increased applications through specialist lenders for borrowers with higher DTI ratios.

Bridging loans for owner-occupiers and loans for the purchase or construction of new dwellings are excluded from the DTI limit calculation. The limit does not apply retrospectively to existing borrowers. If you are considering a property in Brunswick and your deposit and income position you close to the six-times threshold, it may be worth speaking to a broker who can assess your options across both major lenders and non-bank alternatives.

Expenses That Reduce What Lenders Will Approve

Every lender applies a minimum living expense benchmark based on your household size and income level. Declared expenses that fall below this benchmark are adjusted upward. If you state that you spend $1,200 per month on groceries, transport and general living but the lender's benchmark is $2,000 for a single-person household, your application will be assessed using $2,000.

Credit card limits are treated as potential debt even if you pay the balance in full each month. A card with a $10,000 limit can reduce your borrowing capacity by $30,000 to $50,000 depending on the lender's assessment rate. Buy-now-pay-later accounts are treated similarly. If you have three active accounts with a combined limit of $6,000, that can reduce capacity by $15,000 or more. Closing unused accounts or reducing credit limits before you apply has an immediate effect on your serviceability calculation.

Personal loans, car loans and student debt all reduce your capacity. A car loan with $8,000 remaining and monthly repayments of $350 will lower your borrowing power by around $60,000 to $70,000. If the loan is close to being repaid, it may be worth clearing it before applying. HECS-HELP debt is treated as a percentage of your income once your earnings exceed the compulsory repayment threshold, which for the current income year is $54,435. A HECS debt of $40,000 on an income of $90,000 will result in a repayment rate of 2.5%, or $2,250 per year, which lenders factor into the serviceability calculation.

Consider a buyer earning $105,000 per year with a $25,000 HECS debt, a $12,000 personal loan and two credit cards with combined limits of $18,000. Even if the cards are not used, the lender assumes you could draw the full limit at any time. Paying out the personal loan and cancelling one card could add $90,000 to $110,000 to the amount the buyer can borrow. That difference could mean the difference between securing a two-bedroom apartment or a three-bedroom townhouse in Brunswick.

How Lenders Treat Investment Property Debt

If you already own an investment property with an outstanding loan, the lender will assess the debt against the rental income at 80% and add the net cost to your liability position. If your investment loan repayments are $2,200 per month and you receive $1,800 in rent, the lender applies $1,440 as income and treats the shortfall of $760 per month as an expense.

Interest-only loans on investment properties are assessed on a principal-and-interest basis when calculating serviceability for a new loan, even if you are still in the interest-only period. This means the lender will calculate what your repayments would be if the loan were structured as principal and interest over the remaining term and use that figure in their assessment. The approach can significantly reduce your borrowing capacity for an owner-occupied purchase if you hold multiple investment properties.

What Pre-Approval Tells You About Your Position

Pre-approval gives you a conditional commitment from a lender before you sign a contract. It confirms how much you can borrow and locks in the lender's assessment of your income, expenses and deposit. Most pre-approvals are valid for three to six months, though some lenders allow extensions.

Pre-approval does not lock in an interest rate. The rate you receive will be the rate available at the time of formal approval and settlement. If you are approved for $600,000 and property values in Brunswick increase during the pre-approval period, you may find that the amount you were approved for no longer covers the properties you are viewing. Pre-approval also does not guarantee final approval. The lender will reassess your financial position, request updated payslips and bank statements, and conduct a valuation of the property before issuing formal approval.

If you are planning to purchase in Brunswick, pre-approval allows you to move quickly when you find a property that suits your needs, particularly in a market where stock is limited and competition is strong. Sellers and agents view pre-approved buyers as more credible, which can be an advantage when negotiating or competing at auction.

Borrowing Capacity for First Home Buyers in Brunswick

Brunswick sits within the City of Moreland, bordered by Sydney Road to the east and the Upfield railway line running north-south through the suburb. The area is known for its mix of period homes, modern townhouses and apartment developments, with strong demand from both owner-occupiers and investors. The proximity to the CBD, established cycling infrastructure and access to tram and train services make it a popular choice for first home buyers who work in the inner city.

Under the Australian Government 5% Deposit Scheme, eligible first home buyers can purchase with a deposit of as little as 5% without paying lenders mortgage insurance. Housing Australia provides a guarantee to the participating lender, bringing the combined deposit and guarantee to 20%. The scheme has no income cap and no annual limit on the number of places available. The property price cap for Melbourne and regional centres in Victoria is $950,000. Both the purchase price and the lender's valuation must fall at or below this cap.

A first home buyer in Brunswick purchasing an apartment at $650,000 under the scheme would need a 5% deposit of $32,500 plus stamp duty and settlement costs. Victoria offers a full stamp duty exemption on properties valued up to $600,000 and a concessional rate on properties between $600,001 and $750,000. On a $650,000 property, the duty after the concession is approximately $11,000, compared to around $34,000 without the concession. The buyer must move into the property within 12 months and live there for at least 12 continuous months.

If you are applying under the 5% Deposit Scheme, your borrowing capacity is calculated in the same way as any other application. The guarantee does not increase the amount you can borrow. It removes the need to pay lenders mortgage insurance, which on a 5% deposit loan of $617,500 could otherwise cost between $15,000 and $25,000 depending on the lender. Applications are made through participating lenders, and working with a mortgage broker in Brunswick can help you identify which lenders on the panel are most likely to approve your application based on your income and employment type.

Changes You Can Make Before Applying

Paying down existing debt has a direct and measurable effect on your borrowing capacity. Clearing a $5,000 personal loan can add $40,000 or more to the amount you can borrow. Cancelling a credit card with a $15,000 limit can add another $50,000. If you have multiple small debts, consolidating them into a single loan with a lower monthly repayment can improve your position, though the total amount owed remains a factor.

Increasing your income, even modestly, can also improve your capacity. Taking on a second job or additional shifts in a casual role will be recognised by lenders if you can show consistent earnings over at least three months. If you are due for a pay rise or a move to a higher-paying role, it may be worth delaying your application until the increase is reflected in your payslips.

Reducing discretionary spending before you apply will not directly change your borrowing capacity if the lender applies a minimum benchmark, but it does improve your savings position and demonstrates financial discipline. Lenders review three to six months of transaction history on your bank statements and look for patterns of expenditure, regular savings and any unexplained deposits. Large cash deposits, frequent gambling transactions or consistent overdrawing can lead to questions or a declined application.

If you are self-employed, your borrowing capacity is tied to your taxable income. Increasing your declared income by reducing deductions may lower your tax refund but will increase the amount you can borrow. Most lenders require two years of tax returns, though some will accept one year if you have been in business for a shorter period and can demonstrate strong earnings.

When to Speak to a Broker About Your Capacity

Borrowing capacity is not fixed. It changes with your income, expenses, employment type, the lender's policy and the macroprudential settings applied by APRA. A loan health check before you start looking at properties gives you a clear view of how much you can borrow, what changes would improve your position, and which lenders are most likely to approve your application.

If your circumstances are less conventional, such as casual employment, recent self-employment, multiple income sources or existing investment debt, speaking to a broker early in the process allows you to structure your application in a way that maximises your capacity. Different lenders assess income and expenses differently, and a broker can identify which lender's policy aligns with your situation.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions