Capacity

How Much Can You Actually Borrow?

One of the first questions almost every first home buyer asks is:

"How much can I borrow?"

It's a good question.

But it isn't quite the right one.

A better question is:

"How much can I comfortably afford to repay?"

Because that's the question the bank is trying to answer.

Banks don't lend based on how much you want.

They lend based on how confident they are that you can comfortably repay the loan—not just today, but years into the future.

That's what Capacity is all about.

Capacity isn't about wealth.

It's about cash flow.

This surprises a lot of people.

Someone might have:

• $250,000 in savings but only earn $60,000 per year.

Another person might have:

• $25,000 in savings but earn $180,000 per year.

Which person has the higher borrowing power?

In many cases, it's the second person.

Because borrowing power is primarily determined by income, not by assets.

Your deposit is important.

Your ability to make repayments is even more important.

The bank is asking one simple question.

"Can this person comfortably make the repayments if life doesn't go exactly to plan?"

To answer that, they look at several different things.

Your Income

Income is the starting point.

The bank wants to know:

• How much do you earn?
• Is your income stable?
• Is it likely to continue?

Different types of income are treated differently.

For example:

• Salary and wages
• Overtime
• Bonuses
• Commission
• Casual income
• Rental income
• Investment income
• Government benefits

Some income is counted in full.

Some is only partially counted.

Some isn't counted at all.

Every lender has different policies.

Your Existing Debts

Before lending you more money, banks look at what you're already repaying.

For example:

• Car loans
• Personal loans
• Credit cards
• HECS/HELP debts
• Buy Now Pay Later
• Existing home loans

These commitments reduce the amount of income available for a new mortgage.

Credit Cards

This one catches a lot of people by surprise.

Banks don't care how much you currently owe on your credit card.

They care how much you could owe.

If you have a credit card with a $20,000 limit but never use it, many lenders will still assume you could use the full limit tomorrow.

That's why reducing unnecessary credit card limits can sometimes increase your borrowing capacity.

Living Expenses

Banks don't simply assume everyone spends the same amount.

They'll ask about your actual living expenses, including:

• Groceries
• Utilities
• Transport
• Insurance
• Entertainment
• Childcare
• Medical expenses
• Subscriptions

These figures help determine how much income is genuinely available to service a home loan.

The Serviceability Buffer

Here's something many first home buyers don't realise.

Banks don't test whether you can afford the repayments today.

They test whether you could still afford them if interest rates increased.

This is called the serviceability buffer.

For example, even if today's interest rate is 6%, the bank might assess your application as though the rate were 9%.

Why?

Because home loans last for decades.

Interest rates change.

Banks want confidence that you could continue making repayments even if they rise.

Dependants

If you support children or other dependants, your living expenses are naturally higher.

That doesn't mean you can't borrow.

It simply means the bank needs to account for those additional costs.

Stable Income Matters

Capacity isn't only about how much you earn.

It's also about how reliable that income is.

A stable salary is generally easier for lenders to assess than highly variable income.

That doesn't mean casual workers, contractors or self-employed borrowers can't obtain finance.

It simply means more evidence may be required.

Can You Improve Your Capacity?

Absolutely.

Many people increase their borrowing power simply by making a few strategic changes.

For example:

• Pay off personal loans.
• Reduce credit card limits.
• Close unused Buy Now Pay Later accounts.
• Increase your income.
• Reduce discretionary spending.
• Wait until you've completed probation.
• Delay buying a new car.

Sometimes relatively small changes can make a surprisingly large difference.

Don't Chase the Biggest Loan

One final thought.

Just because a bank is willing to lend you a certain amount doesn't mean you should borrow it.

Maximum borrowing power isn't the goal.

Buying a home while still sleeping well at night is.

The best loan isn't necessarily the biggest one.

It's the one that helps you achieve your goals without putting unnecessary pressure on your finances.

How a Perch Broker Can Help

Online borrowing calculators are a useful starting point.

They're also wrong surprisingly often.

That's because every lender assesses borrowing power differently.

When you become a Perch client, we'll run a comprehensive borrowing power assessment across dozens of lenders to identify not only how much you may be able to borrow, but which lenders are most likely to suit your circumstances.

We'll help you understand:

• Your realistic borrowing capacity
• Which debts are reducing your borrowing power
• Whether reducing a credit card limit could help
• How different lenders assess your income
• Which lender is likely to offer the strongest outcome for your situation

Sometimes a small change—such as paying off a loan, reducing a credit card limit or waiting a few months—can significantly improve your borrowing capacity.

Our goal isn't to maximise how much you can borrow.

It's to help you borrow comfortably and confidently.