How to Increase Borrowing Capacity in Australia 2026

How to Increase Your Borrowing Capacity in Australia (Step-by-Step Guide 2026)

Your borrowing capacity isn't fixed. Most buyers assume the number a bank gives them is the final word; it isn't. Borrowing capacity in Australia is determined by a formula, and formulas can be optimised. In 2026, with the RBA cash rate at 4.10% and lenders' stress-testing at 9.5–10% assessment rates, capacity has compressed significantly compared to two years ago. But there are concrete, proven steps that move the number, and at ASK Financials, we work through them with clients every day.

How Lenders Actually Calculate Your Borrowing Power

Before fixing anything, understand what lenders are measuring. Every major bank uses a serviceability assessment built on four components:

• Your income: assessed after tax, with some income types discounted (overtime, rental income, self-employment) depending on the lender

• Your committed expenses: all existing loan repayments, credit card limits (typically 3% of limit counted monthly), and HECS/HELP repayments

• Your living expenses: lenders apply the HEM (Household Expenditure Measure) benchmark, which serves as a baseline estimate of household spending. In practice, many lenders assess your declared living expenses and apply HEM as a minimum floor, rather than relying on it alone. The benchmark is updated periodically to reflect changes in the cost of living.

• The APRA buffer: your application is stress-tested at your contract rate plus 3%. With standard variable rates at 6.5–7.0%, assessment rates run at 9.5–10.0%

The result of this formula determines your maximum borrowing capacity. In 2026, the average Australian home loan sits around $675,000, but deposit sizes vary widely depending on the borrower, ranging from 5% to 20% or more, depending on eligibility, lender policy, and government schemes. That variation is exactly why two similar borrowers can end up with very different outcomes. of around $173,000.

Step 1: Reduce Credit Card Limits: Fastest Win Available

This is the single fastest way to increase borrowing capacity. Lenders typically assess between 2.5% and 3.8% of your total credit card limit as a monthly committed expense, regardless of what you actually spend. A $20,000 credit card limit adds $600/month to your assessed expenses. That $600/month can reduce your borrowing power significantly. Often in the range of tens of thousands, depending on interest rates, loan terms, and your income profile. Reduce the limit to $5,000, and you've potentially recovered $40,000+ in capacity instantly. Cancel cards you don't use. Lower limits on cards you keep. Do this 60–90 days before applying so the change is reflected in your credit profile.

Step 2: Understand What Your HECS Debt Is Actually Doing

HECS-HELP debt affects home loan borrowing capacity, not through your credit score, but by reducing your assessable income. Lenders treat HECS repayments as a committed liability. Lenders now have more flexibility in assessing HECS, and most lenders include HECS repayments as a committed liability, although a small number may take a more flexible view if the balance is close to being repaid. On a $90,000 salary, HECS can reduce borrowing capacity by roughly $40,000 - $60,000, depending on the lender and assessment setting. If you're close to clearing yours, paying it off before applying could unlock significant additional capacity.

FAQ: Does paying off HECS before applying actually increase my borrowing power?

Answer: Yes, for many borrowers it does, but it depends on your income and remaining HECS balance. The decision should be modelled carefully before you pay, because using savings to clear HECS could reduce your deposit. ASK Financials can run the exact numbers for your situation before you decide.

Step 3: Pay Down Existing Debt: Every $500/Month Matters

Every $500/month in existing loan repayments reduces your maximum home loan by approximately $52,000–$60,000. A car loan. A personal loan. Buy-now-pay-later accounts count as committed expenses. Paying off a $500/month car loan before applying doesn't just feel better; it materially changes the number a lender offers you. Prioritise clearing short-term, high-repayment debt in the months before your application, and don't take on new debt in the 6–12 months leading up to purchase.

Step 4: Maximise Assessable Income: Not All Income Is Treated Equally

Lenders don't count all income at face value. Understanding how your income is assessed and structuring it accordingly can significantly impact borrowing capacity in Australia.

• Overtime and allowances: typically discounted; usually 80% of the average over 2 years is accepted

• Rental income: most lenders accept 80% of gross rental income for serviceability

• Self-employment income: averaged over 2 years of tax returns; recent strong years may not fully count

• Second income/casual: requires 12 months of history with the same employer at most lenders

A mortgage broker who understands how each lender treats different income types can match your specific income profile to the lender most likely to assess it most favourably, which can mean tens of thousands of dollars' difference in what you're offered.

Step 5: Choose the Right Lender: Borrowing Power Varies by 20–40%

This one surprises most buyers. Your borrowing capacity can vary by 20–40% across different lenders for the same application because each lender applies their own HEM benchmark, income shading policies, and credit criteria. One lender might offer $650,000. Another might offer $850,000. Same income, same expenses, same application. The difference is the lender policy. This is precisely where working with ASK Financials adds concrete, measurable value. We know which lenders suit which financial profiles, and we get your application in front of the right one from the start. Check the borrowing capacity guide for an independent overview of what affects your borrowing capacity.

How ASK Financials Helps You Borrow More: Legally and Strategically

Increasing borrowing capacity isn't about gaming the system. It's about presenting your financial position accurately and completely to the right lender. ASK Financials works across a broad panel of lenders, understands how each one assesses income, debt, and expenses, and builds applications that reflect your full financial picture. Our clients consistently borrow more than they expected, not because we inflated their position, but because we found the lender that suited them. No broker fee. No guesswork.

The Bottom Line

In 2026's tighter lending environment, borrowing capacity matters more than ever. The good news is it's movable with the right preparation, the right lender, and the right guidance. Start with your credit cards, understand your HECS position, clear short-term debt, and then get a broker involved before you apply, not after a decline.

Book a free consultation with ASK Financials; we'll calculate your current borrowing capacity, identify every opportunity to improve it, and match you to the right lender.

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