maximising your borrowing capacity and serviceability
Your serviceability can be impacted by credit card limits. Image: Canva.
  • Cutting unnecessary spending could mean keeping yourself to just Netflix, Stan, or Disney+, not all three.
  • A daily coffee or takeaway can also add up and impact your borrowing capacity.
  • Rethink your credit card and whether you need one or need to reduce the limit.

As quickly as the interest rates were rising, property buyers saw their borrowing capacity decline.

In 2023, we have seen the Reserve Bank of Australia (RBA) raise the cash rate from 1.85% last August, to 4.10% as at July 2023 (just 12 months later). This is impacting both home buyers and investors who are seeking to purchase property in this tough climate.

If you are struggling to get the loan approval amount that you need, there are ways you can improve your borrowing capacity but we must first look at what serviceability means.

The influences on your serviceability are the same enablers that impact our borrowing capacity. In fact, most buyers’ borrowing capacity has declined by about 30% over the year due to higher interest rates and the impact of inflation, according to CBA.

What is serviceability?

Serviceability is someone’s ability to make repayments against a loan, and is determined by the size of the loan versus the person’s income and expenses.

It is calculated by taking your income then subtracting living expenses and household expenditure, and deducting the new loan repayment.

In the current climate, with cost of living pressures impacting our day-to-day expenses, our serviceability will also take a big blow. Our wages are not increasing by as much as our living expenses, meaning that our serviceability is suffering.

How can we improve our serviceability?

There are a few small changes that you can make to your spending habits that will make you more attractive to a lender. These small changes will improve your serviceability and allow you to maximise the approval from your lender.

Cancel and reduce credit cards

It is a no-brainer.

If you have any credit cards that you are not using, just cancel them.

The banks will consider the credit card limit as a liability even if you don’t owe anything on it.

For the credit cards that you do have, reduce the limit to an amount that is sensible and try to pay it off each month. It is best to use a debit/savings card over a credit card and keep your credit card for only emergencies, with the limit as low as possible.

Without credit cards, your living expenses in your serviceability calculation will reduce.

Do not take cash in hand for jobs.

You may be tempted to take cash in hand for some work you do.

Without proof of what income you have actually earned, the lenders will only be able to offer you a loan based on the income as proven through your tax returns – and some lenders may even request to see up to two years of history.

Reduce unnecessary spending

When you look at your regular monthly bank statements, I would implore you to go line by line and investigate what expenses can be cancelled or reduced- no matter how small they may be.

Do you really need subscriptions to every streaming service Netflix, Stan, Disney, Amazon Prime, FOXTEL, Paramount, etc? If possible, cancel streaming services or just stick to one service at a time to reduce your spending.

Take a look at your phone and internet bills and compare how much you are spending on your plans vs how much of your plan you are actually using. It is highly likely that you took a much larger data plan than you need, so investigate reducing these costs if possible.

Another area that might surprise you, is how much you are actually spending on takeaway food. Many people don’t realise that the daily coffee, afternoon treat and takeaway on weekends really add up to a large amount over the month.

Once you are able to critically reflect on your spending habits, you will notice your borrowing capacity will improve and you will have better ability to service any loans.

Not all lenders are equal

If you are struggling to reach the pre-approval amount you need to purchase that property, you may get a different outcome if you look to another lender.

The best way to ‘shop around’ for a lender is to use an experienced mortgage broker who understands your needs and can help you to find a loan that really suits your needs.

How to avoid ‘mortgage stress’

Mortgage stress is defined as when a household’s mortgage repayments are 30% or more of the total household pre-tax income. This is recognised as the point that someone will struggle to make mortgage repayments as well as maintain a lifestyle.

To avoid falling into a situation where you are under mortgage stress, you should avoid taking high risks when buying property.

It is best to always ‘plan for the worst, but hope for the best’ when considering what your mortgage repayments would be. This means always planning for the ‘worst case scenario’ and ensuring that you will be able to afford the repayments should they go up by 3% more than the current rate.

You should always test whether you will be able to afford higher interest rates even if you think this scenario is highly unlikely.


Before making any financial decisions, please do your own independent research, taking into account your own situation. This article provides factual information only and is not intended to imply a recommendation or opinion about a financial or credit product. See our Terms of Use.

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