A pre-approval figure can feel like the number that decides your property search. But it is not fixed. If your borrowing capacity is lower than expected, there are practical ways to improve it before you make an offer - and some changes can have more impact than others.
Knowing how to improve borrowing power gives you more choice: a broader range of suburbs, a stronger position at auction, or more room to buy a home that suits your life for longer. The right approach depends on your income, commitments, deposit and timeline, so focus on changes that are realistic rather than rushing to apply for finance again.
What lenders look at when assessing borrowing power
Borrowing power is the amount a lender may be willing to lend based on its assessment of your ability to make repayments. It is not simply a multiple of your salary. Lenders look at your income, living expenses, existing debts, household circumstances, savings history and the loan type you are applying for.
They also build in a higher interest rate than the one you may actually pay. This is known as a serviceability buffer. It is designed to test whether you could still manage repayments if rates rose. That is why a property budget that feels comfortable today may not match the amount shown by a lender’s calculator.
Every lender has its own policy. One may take overtime, bonuses or rental income more generously than another, while another may have a different view of expenses or self-employed income. A finance professional can help compare suitable options, but the fundamentals of a strong application are consistent.
How to improve borrowing power in practical steps
Reduce high-interest and unused debt
Credit cards, personal loans, car finance and buy now, pay later accounts can reduce borrowing capacity, even when you always pay on time. Lenders assess the potential repayment attached to a credit card limit, not only the balance you carry. A card with a $10,000 limit may affect serviceability even if the current balance is zero.
Paying down personal debt can improve your position, particularly where repayments are substantial. If you have credit cards you no longer use, consider reducing the limits or closing the accounts once you are certain there is no ongoing need. Avoid opening new credit facilities while preparing to apply for a home loan.
There is a trade-off. Do not close your only credit card if it is useful for emergencies without first building a cash buffer. The goal is to reduce commitments while keeping your everyday finances stable.
Review your spending with a lender’s lens
Lenders use a combination of benchmark living costs and your actual expenditure. Regular spending on dining out, subscriptions, childcare, insurance, school fees, private health cover, transport and discretionary shopping can all influence the outcome.
This does not mean you need to live unrealistically for months. It means your bank statements should show a sustainable household budget. Start by separating essential expenses from optional ones, then look for recurring costs that no longer represent good value. Cancelling three unused subscriptions will not transform a loan application on its own, but a clear pattern of controlled spending can support a stronger financial picture.
For couples, have this conversation early. A purchase budget is a shared commitment, and differing spending habits can become more visible during a loan assessment.
Increase and document your income
A pay rise, promotion, additional regular shifts or a stable second job may lift your borrowing capacity. However, lenders usually want to see that additional income is genuine and ongoing. Recent payslips, employment contracts and tax records matter.
If you are self-employed, keep business and personal finances well organised and ensure your tax returns are up to date. Lenders commonly rely on taxable income, so deductions that reduce tax can also reduce the income available for borrowing purposes. This is not a reason to make tax decisions solely for a future loan, but it is worth discussing the timing and implications with your accountant and broker.
Rental income can also help investors and rentvesters, although lenders generally use only a portion of the rent to allow for vacancies, management costs and maintenance. A realistic investment strategy should allow for these costs too.
Build a larger deposit without draining all your cash
A bigger deposit can reduce the amount you need to borrow, which may make repayments and lender requirements easier to manage. Reaching a 20 per cent deposit can also help you avoid lenders mortgage insurance in many situations, although it is not the only pathway to buying.
For some buyers, waiting to save more is worthwhile. For others, particularly in a changing Sydney market, the value of entering sooner with a smaller deposit may outweigh the cost of lenders mortgage insurance. The better choice depends on likely property prices, your savings rate, your job security and how long you intend to hold the property.
Keep funds aside for stamp duty where applicable, conveyancing, inspections, moving costs and an emergency reserve. Using every dollar on the deposit can leave a new owner exposed when the first unexpected repair arrives.
Protect your credit profile
Your credit report records applications for credit as well as repayment history. Multiple loan or credit card applications within a short period can make you appear financially stretched, even if you are simply comparing options.
Check your credit report before starting the formal loan process and correct any errors. Pay bills and loan repayments on time, including utilities and mobile accounts. If you have had a missed repayment or financial hardship period, be upfront with your broker or lender. Some issues can be explained, but surprises discovered late in an application can cause delays.
Choose the right loan structure and lender
The lowest advertised rate is not automatically the best way to improve your buying position. Loan terms, fees, repayment type, offset features and the lender’s approach to your employment or income can all matter.
Extending a loan term may increase borrowing capacity by lowering the assessed repayment, but it can also mean paying more interest over the life of the loan. Interest-only repayments can have a place for some investors, yet they are not usually the right choice for an owner-occupier focused on reducing debt. Consider the long-term cost, not just the maximum amount a lender says you can borrow.
A pre-approval should also be treated as a planning tool, not a blank cheque. Set a purchase limit that still leaves room for rate movements, strata levies, council rates, repairs and the lifestyle you want after settlement.
Timing matters when you are preparing to buy
If you plan to buy within three to six months, avoid major financial changes unless they are clearly beneficial. Changing jobs, taking on a new car loan, applying for several cards or making large unexplained transfers can complicate an application.
Instead, keep saving consistently, reduce debt, retain clear records and speak with a broker early. If you are receiving a gift from family, document it properly. If you have recently returned from parental leave or moved into contract work, allow time to understand what different lenders will require.
For buyers who are not ready yet, set a target date and work backwards. A six-month plan to clear a personal loan, tighten discretionary spending and build savings can be far more effective than browsing homes outside your current budget every weekend.
Keep the property decision connected to the finance decision
Improving borrowing power is useful, but borrowing the maximum is not always the smartest move. A well-chosen property in a location you can comfortably hold may serve you better than stretching for a higher price point that creates ongoing pressure.
This is especially relevant for first-home buyers deciding between a smaller home in a preferred suburb, an apartment closer to work, or a rentvesting strategy. Investors also need to account for vacancy periods, maintenance, land tax where relevant and changing interest costs, rather than relying only on expected rent.
At Your Next Move Real Estate, we see the strongest buying decisions happen when finance, property goals and local market realities are considered together. Give yourself enough time to improve your position, seek appropriate financial advice, and choose a budget that lets your next move feel exciting rather than tight.
