Has Your Borrowing Capacity Increased?

If you haven’t reviewed your borrowing power recently, now could be an opportune moment to do so. The financial landscape in 2025 has shifted significantly, and you may find your borrowing capacity is greater than you expect.

What’s Changed in 2025?

This year has been notable for several positive developments affecting Australian households:

• Tax cuts have increased take-home pay for many.

• Two official interest rate reductions have lowered home loan repayments.

• Reductions in HECS-HELP debts and changes in how lenders assess student loans.

Together, these factors may have enhanced your ability to secure finance for a home or investment property purchase.

Understanding Your Borrowing Power

Your borrowing power, or borrowing capacity, is the amount a lender is willing to offer you for a home loan. While each lender uses their own methodology, three core factors generally determine your capacity:

• Your income

• Your household expenses

• Existing debts and financial commitments

Importantly, your borrowing capacity is not fixed; it changes as your circumstances and economic conditions evolve. Several recent developments may have increased your borrowing power:

Four Reasons Borrowing Capacity Is On the Rise

1. Falling Interest Rates

With two Reserve Bank rate cuts this year, the average variable rate on property loans has dropped from around 0.50%. Lower rates reduce monthly repayments, which in turn can boost your borrowing power. For example, recent data indicates that a single person on an average wage may have gained an extra $23,000 in borrowing capacity, while couples may see increases of $40,000–$45,000.

2. Introduction of Stage 3 Tax Cuts

The latest round of tax cuts has put more money in Australians’ pockets, increasing after-tax income and, consequently, borrowing capacity. Some estimates suggest a couple with no children could see a $47,000 uplift in borrowing potential.

3. Wages Growth

From July, approximately 2.9 million Australians benefited from a 3.5% increase in the National Minimum Wage and award wages. Even those not directly affected may have seen wage increases through individual negotiations or new employment opportunities. Higher income can directly translate into greater borrowing power.

4. Changes in HECS-HELP Debt Assessments

Lenders have amended their approach to HECS-HELP debts in 2025. If your student debt is nearly paid off, lenders may now disregard HECS-HELP repayments in their serviceability calculations, potentially increasing your borrowing capacity.

Practical Steps to Further Boost Your Borrowing Power

If you’re aiming to maximise your borrowing capacity, consider the following strategies:

• Reduce household expenses: Cutting back on regular outgoings—such as subscriptions, gym memberships, or utility plans—can improve your serviceability in the eyes of lenders.

• Lower your credit card limit: Lenders assess your borrowing power based on your total credit card limits, not your current balances. Every $10,000 in credit limit can reduce your borrowing capacity by about $50,000. If you don’t wish to cancel a card, consider requesting a lower limit.

• Minimise other debts: Paying down personal or car loans can make a significant difference to your borrowing power and bring you closer to your property goals.

Know Your Number—But Borrow Responsibly

While an increase in borrowing power is good news, it’s important to borrow within your means. Understanding your current borrowing capacity can help you make informed decisions about your home loan options and property ambitions.

If you’d like to review your borrowing power or discuss strategies to further enhance your position, please get in touch. Our team can provide personalised insights and help you make the most of changing market conditions.

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