What Actually Increases Your Borrowing Power (It Is Not Skipping Dinner)

Every few months, someone in the property industry tells first home buyers that the problem is their spending. Stop going out for dinner. Skip the coffee. Your parents did it tougher.

I want to take that seriously rather than just dismiss it, because there is a grain of truth buried in there. But as someone who submits these applications for a living, I can tell you the advice is aimed at the smallest lever available to you — and there is a much bigger one sitting right next to it that almost nobody mentions.

Here is the difference, in round numbers:

That is not a rhetorical flourish. It is how the assessment works, and I can show you exactly why.

First, The Part That Is Fair

Lenders genuinely do look at your spending. When you apply, you hand over roughly three months of bank statements, and they get read. Regular takeaway, subscriptions, buy-now-pay-later, gambling transactions — all of it is visible, and some of it will be questioned.

So the advice is not coming from nowhere. If your statements show chaos, that is a problem, and tidying up the three months before you apply is genuinely worth doing.

But “your spending is visible” and “cutting your spending increases what you can borrow” are two very different claims. The second one is mostly false, and the reason is written into the regulator’s own guidance.

The Benchmark That Cancels Out Your Sacrifice

Lenders do not simply take your declared living expenses at face value. They compare them against a benchmark — usually the Household Expenditure Measure, or HEM — which estimates what a household of your size, income and location realistically spends.

Then comes the part that matters. APRA’s APG 223 Residential Mortgage Lending states that it expects lenders to use “the greater of a borrower’s declared living expenses or an appropriately scaled version of the HEM”.

The greater of.

Read that again, because it changes everything about the advice you have been given. Once your declared spending drops to the benchmark, cutting further does not increase your borrowing capacity. The lender puts the benchmark back in. You can give up every restaurant meal for twelve months, walk into the bank, and be assessed on the same living expense figure as the person who did not.

It still helps you save a deposit — that part is real, and I will come back to it. But as a way to make a lender lend you more, austerity below the benchmark is mechanically incapable of working.

The Lever Nobody Tells You About

Now the one that does work, and it is almost absurdly easy.

A credit card is assessed on its limit, not its balance. An unused card with a $20,000 limit and nothing owing on it is treated as a real, ongoing monthly commitment.

How much of one? The same APRA guidance says a lender “may assess a borrower’s repayment obligation for credit card or other revolving personal debt using a rate of three per cent per month“. Three per cent of $20,000 is $600 a month — a $600 monthly expense you are not actually paying, on a card you may not even use.

Feed that back through a serviceability assessment and here is what those limits are costing you:

Assessed at 6.00 per cent plus the 3.0 percentage point buffer regulated lenders must apply, over a 30-year term. Your figures will differ — model yours on the borrowing power calculator.

Reducing or closing that card takes about ten minutes with your bank. It is worth roughly twenty-eight years of skipped $50 dinners.

The same logic applies to everything else you owe

• A $520 a month car loan is costing you roughly $65,000 of borrowing power.
• HECS-HELP on a $95,000 salary is about $318 a month, or roughly $40,000 of capacity. Clearing a small remaining balance before you apply can be worth far more than the balance itself.
• Buy-now-pay-later accounts are visible and are counted. Closing dormant ones costs you nothing.

None of these require you to stop living. They require an afternoon and a few phone calls. We go through how the whole assessment is built in what lenders actually assess.

Where Cutting Back Genuinely Does Help

I do not want to overcorrect here. Saving harder has a real effect — it just lands on the deposit, not on your borrowing capacity.

And it is worth being honest about the scale of that effect, because this is the part first home buyers are right to be frustrated about.

Give up $50 a week and you save $2,600 over a year. Meanwhile, on an $800,000 home growing at 3.5 per cent, the 20 per cent deposit you are chasing rises from $160,000 to $165,600 — the target moves $5,600 in the same twelve months.

The dinners did not even cover the movement in the goalposts. That is not a character flaw, and no amount of skipped brunch fixes it. It is arithmetic, and we look at it more closely in what inflation actually means for buyers and owners.

What moves the deposit faster

For most Newcastle and Lake Macquarie buyers, the deposit problem is solved by needing a smaller one rather than saving a bigger one:

• The 5% Deposit Scheme. Newcastle and Lake Macquarie are designated regional centres, so the property price cap here is $1,500,000, not the $800,000 that applies to other parts of regional NSW. Eligible buyers purchase with a 5 per cent deposit and no lenders mortgage insurance.
• The NSW stamp duty exemption. No transfer duty up to $800,000, with a concession to $1,000,000 — money that stays in your deposit rather than going to Revenue NSW.

On a $780,000 purchase, those two together mean a deposit of about $39,000 instead of $156,000, and no duty. That is a different universe from saving your way to $160,000 while prices move. The detail is in our guide to NSW first home buyer costs.

The Order I Would Actually Do This In

1. Reduce or close unused credit card limits. Highest impact, lowest effort, and it is available to you today.
2. Clear or pay down consumer debt — car loans, personal loans, buy-now-pay-later.
3. Check whether you are eligible for the 5% Deposit Scheme. It changes the size of the problem rather than chipping away at it.
4. Tidy three months of statements before you apply. Not austerity — just no surprises.
5. Then, if you want to, cut back. It builds your deposit. Just know what it is doing and what it is not.

Frequently Asked Questions

Why This Is Worth A Conversation

Here is the honest reason I have written this. Almost every first home buyer I meet has been carrying at least one of these — an old credit card with a limit nobody reduced, a car loan they were about to pay out anyway, a HECS balance small enough to clear — and nobody had told them what it was costing.

Working out which of them applies to you takes one conversation. It is free, there is no obligation, and it usually ends with a number considerably larger than the one you were expecting.

You have almost certainly been told the problem is your spending. In my experience it is far more often your structure — and unlike your spending, structure can be fixed in an afternoon.

Want to talk through what this means for your situation? Call David on 0417 676 191 or get in touch via our contact form.

This article is general information only and does not take into account your objectives, financial situation or needs. Figures are illustrative and current as at the date of publication. Interest rates, lender policies and government scheme rules change — please seek advice specific to your circumstances before acting.

Sources

• Australian Prudential Regulation Authority, APG 223 Residential Mortgage Lending — living expense benchmarks and the treatment of revolving credit.
• Australian Prudential Regulation Authority, Prudential Standard APS 220 Credit Risk Management — the 3.0 percentage point serviceability buffer.
• Australian Government, 5% Deposit Scheme — Property Price Caps.
• Revenue NSW, First Home Buyers Assistance Scheme.