How Lenders Calculate Borrowing Power
Australian lenders assess borrowing power using a debt-to-income serviceability test. They take your gross income, deduct living expenses (benchmarked to the Household Expenditure Measure or HEM), deduct existing debt repayments, and calculate how much loan your remaining income can service at the assessment rate — currently the RBA cash rate plus a 3% buffer (approximately 7.35% for most lenders in 2026). Every dollar of existing debt and every dollar above HEM in declared expenses reduces your borrowing power.
Strategy 1 — Reduce or Close Credit Cards
Most Australian lenders assess credit card exposure at 3.8% of the limit per year — not the balance. A $10,000 credit card limit reduces your assessed borrowing power by approximately $50,000-$60,000, regardless of whether you owe anything on it. Closing unnecessary credit cards or reducing limits before applying is one of the highest-impact changes you can make. Even if you pay the balance monthly, lenders see the limit as a potential liability.
Strategy 2 — Pay Down HECS/HELP Debt
HECS repayments are included in lenders' serviceability calculations as a liability. At a $70,000 income, the mandatory HECS repayment rate is 4.5% ($3,150/year or $263/month). This reduces your borrowing power by approximately $35,000-40,000. While you cannot make discretionary HECS repayments with the same tax efficiency, reducing the HECS balance before applying improves your borrowing capacity directly.
Strategy 3 — Increase Your Deposit
A larger deposit reduces the loan amount needed, but also affects the loan-to-value ratio (LVR). Below 80% LVR, Lenders Mortgage Insurance (LMI) is not required — saving $10,000-$30,000+ in upfront costs. Additionally, some lenders offer more favourable rates and higher borrowing multiples for lower LVR loans, as the risk profile is better. Saving from 10% to 20% deposit can improve your borrowing power while eliminating LMI.
Strategy 4 — Improve Your Credit Score
Australian lenders use credit scores from Equifax, Experian and illion in their assessments. A poor credit score may result in loan decline or a higher interest rate — which reduces borrowing power. Improve your score over 6-12 months by:
- Paying all bills on time — every missed payment damages your score
- Reducing credit card utilisation below 30% of limit
- Not applying for multiple credit products simultaneously
- Disputing and correcting any errors on your credit report
- Keeping older accounts open (credit history length matters)
Strategy 5 — Add a Co-Borrower
Adding a partner, spouse or family member as co-borrower combines incomes for serviceability assessment. This is one of the fastest ways to increase borrowing power — combining two incomes can more than double the assessed capacity compared to one income alone, due to the progressive nature of the HEM benchmarks. Note: both borrowers are jointly and severally liable for the full loan.
Frequently Asked Questions
How much can I borrow on a $100,000 salary in Australia 2026?
At a $100,000 salary with no dependants, minimal debts and the current 7.35% assessment rate, most lenders will assess borrowing power of approximately $450,000-$520,000. Adding a second income significantly increases this. Use our borrowing power calculator for your specific situation.
How long does it take to improve borrowing power?
Some strategies like closing credit cards take effect immediately (within 30-60 days of the closure being recorded). Credit score improvements take 3-12 months. Increasing your deposit or income takes longer. Most borrowers can meaningfully improve their position within 3-6 months of focused effort.
Does overtime income count for home loan borrowing power?
Yes, but most lenders require 2 years of consistent overtime history documented in payslips and tax returns to include it at 100% in their assessment. Some lenders include it at 80% with 1 year of history.