Understanding Your Borrowing Power: How Much Can You Really Afford in 2025?

One of the most important steps in your home-buying journey is knowing exactly how much you can borrow. This figure, known as your borrowing power, determines your price range and influences everything from where you buy to how confidently you can negotiate. For first-home buyers, understanding your borrowing power upfront can help avoid disappointment, ensure you're house-hunting in the right bracket, and boost your chances of getting approved.

What Is Borrowing Power?

Your borrowing power is the maximum amount a lender is willing to let you borrow based on your income, expenses, credit history, and overall financial situation. Lenders evaluate this to determine whether you can comfortably manage mortgage repayments. While your income is a major factor, expenses, debts, and even the loan structure itself can all impact how much you're approved for. Because each lender uses a slightly different method to calculate this figure, your borrowing capacity can vary significantly from one bank to the next. That’s where working with a mortgage broker can be a big advantage, we compare across lenders to help you secure the highest possible limit.

How Do Lenders Work It Out?

Lenders apply a method called a serviceability assessment to calculate your borrowing power. They’ll begin by reviewing your gross income, which includes your base salary, and in many cases, consistent overtime or bonuses, investment income, or verified self-employment income. From there, your expenses are subtracted, everything from utility bills and groceries to school fees, subscriptions, and transport costs. Any debts you already have, such as credit cards or personal loans, are also taken into account.

Importantly, lenders apply a “buffer” or stress test, meaning they assess your ability to repay the loan even if interest rates rise, typically by 3% above the current rate. This ensures you could still afford repayments in a higher rate environment, helping protect both you and the lender.

What Impacts Your Borrowing Power?

Your income is one of the most influential factors. Lenders favour stable, ongoing income, whether it’s from full-time, part-time, or even casual work, as long as it’s consistent. Self-employed income is also accepted if supported by at least one to two years of tax returns.

But income alone isn’t enough. Your everyday spending habits also play a big role. If you're regularly spending large amounts on dining out, streaming services, or shopping, lenders may take a more cautious approach. Reducing these expenses in the months leading up to your application can make a real difference.

Credit history is another major consideration. A strong credit score not only improves your chances of approval but could also give you access to better rates. If your score is low, it’s worth improving it by paying bills on time and reducing your credit card balance. And finally, the type of loan you choose - such as a longer-term loan or one with a lower interest rate - can also impact how much you're allowed to borrow.

Ways to Improve Your Borrowing Power

If your borrowing power isn’t quite where you need it to be, there are a few smart strategies to help boost it. Paying off existing debts like credit cards, personal loans, or buy-now-pay-later accounts is a great first step. Even reducing your credit card limit (regardless of the balance) can make a difference.

Increasing your deposit also helps, as it reduces the amount you need to borrow. Many lenders also want to see at least 5–10% of your deposit as genuine savings, meaning it’s been held in your account over time rather than gifted or borrowed.

Cutting back on lifestyle expenses temporarily - such as streaming services, frequent dining out, or luxury purchases - can also strengthen your application. Applying with a partner or co-borrower can boost your borrowing power too, as combined income is taken into account.

Common Mistakes That Can Reduce Borrowing Power

A few simple missteps can negatively impact your borrowing power. One of the most common is applying for multiple credit cards or personal loans in a short period, each application is recorded and can reduce your credit score. Another is overestimating income, especially for casual or commission-based roles, which lenders will verify against payslips and bank statements.

It’s also easy to forget to check your credit report before applying. A quick review through Equifax or Experian can help you catch any errors or unpaid debts early. And once you’ve been pre-approved, avoid large purchases like furniture, cars, or overseas holidays until after settlement, as new debts or reduced savings can change your loan eligibility at the last minute.

Final Thoughts: Know What You Can Afford Before You Buy

Your borrowing power isn’t just a number, it’s the foundation of your home-buying journey. The more you understand about what affects it, the better you can prepare and position yourself for a successful mortgage application. High income, low expenses, minimal debt, and a solid credit score are all key ingredients.

If you're unsure where you stand or want to explore ways to boost your borrowing power, working with a mortgage broker can give you the clarity and support you need. We'll help you calculate your capacity accurately and match you with lenders who are more likely to say “yes.”

How We Can Help

We’ll assess your financial position to give you a clear picture of how much you can borrow. From there, we’ll compare a wide range of lenders to find the most suitable home loan for your goals, whether you're buying your first home or upgrading. Ready to find out what your borrowing power is? Get in touch today for a free, no-obligation assessment.