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Maximising Your Borrowing Capacity as Rates Rise

Most people understand that rising interest rates means an increase to a mortgage holder’s cost of living, but what many don’t realise is that it also means that your capacity to borrow decreases. In fact, since interest rates started to rise this year most borrowers can only borrow about 85% of what they could at the start of the year, and this will only decline as further rates rises are announced.

Rate predictions for 2023

All four major banks have predicted further rate hikes this coming year. Here is what their economists are saying:

CBA – One more 0.25% hike in February

Westpac – Three more 0.25% hikes in February, March and May

NAB – Two more 0.25% hikes in February and March

ANZ – Three more 0.25% hikes in February, March and May

There are, however, adjustments you can make to your financial position that may counteract a diminishing borrowing capacity and help you secure the finance you seek.

In short, a borrower’s ability to service a loan is determined by comparing an applicant’s income against their outgoings so when looking to maximizing your borrowing capacity, consider the following:

Living expenses

Lenders will reconcile the amounts declared in your application for your general cost of living with activity on your transaction statements so it’s imperative to ensure what you declare is honest and realistic. It may pay to ask yourself if there are any ongoing expenses that are not necessary, or you could survive without. For instance, do you use your gym membership? Do you have more streaming services than you need? Could you pare back the frequency of how often you dine out? An audit on your discretionary expenses may create additional disposable income.

Credit card debts and their limits

Applicants often regard their credit card in terms of the outstanding balance rather than the total credit limit, but that isn’t how the lender sees it. Even credit cards with a zero balance that are rarely, if ever, used need to be declared as they still represent the potential of future debt. If you have a credit card you do not use, close it or if you do not need the entire limit you have, request your credit provider reduce it. This can be an easy fix that potentially can increase your borrowing with little impact to your circumstance.

Personal Loans and “Buy Now, Pay Later” facilities

Any other commitments such as personal loans or car loans will affect your capacity to borrow so if it is possible, work on paying them off as soon as possible. If you have a short amount owing, endeavour to pay it off and free up those funds for your home loan. Similarly, if you use services such as Zip Pay and Afterpay, look at clearing those liabilities as they also have a bearing on what the bank will lend, which many potential borrowers are not aware of.


The other side of the equation is your income. It is not always easy or feasible to increase it, but for some there may be scope. Taking on a side hustle or extra job, working overtime hours if available or securing a higher paying position may be options for some to increase cash flow.

Check Your Credit Report

Your credit history may impact your capacity to borrow. If your credit score is compromised due to tardy conduct on previous commitments or from multiple credit enquiries, there may be an impact on your access to credit and how much you are able to borrow. It can therefore be prudent to obtain a copy of your credit file before applying for a loan to ensure there is nothing detrimental on there that may hinder your application.

Right now, every dollar does count when it comes to calculating an applicant’s capacity to borrow so if your situation was tight a few months ago, it will be squeezed even further now.

Want to know how much you can borrow? Contact one of our mortgage brokers today and we can let you know and give you guidance on where you may be able to trim some fat to get more out of your next loan application.

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Take control of your finances and start paying less on your mortgage today. With our no cost, no obligation review of your existing loan, our expert mortgage brokers will analyse your current loan and provide you with a tailored solution to help you save on interest and pay your loan off quicker.

Paul Prindiville


0438 196 695