How to Increase Borrowing Capacity in South East Melbourne, What Lenders Actually Check
Most people who feel stuck at a particular borrowing figure have been given a number based on one lender's model, on one day, with one set of assumptions about their expenses and commitments. It is not a ceiling. It is a snapshot, and a surprisingly moveable one.
The gap between what lender A will offer and what lender B will offer for the same income and the same deposit is often $80,000 to $150,000. That gap comes from how each lender reads your income, weights your expenses and counts your existing commitments. Understanding which parts of that assessment you can genuinely shift is where the real planning happens.
The EverLend team helps buyers across South East Melbourne work through exactly this, comparing across a panel of 60+ lenders. The home loan structure and lender you end up with matters as much as the rate.
Key takeaways
- Lenders add a 3.0% buffer on top of your actual rate to stress-test repayments.
- Credit card limits reduce your capacity regardless of the balance you carry.
- Every approved suburb in South East Melbourne has a $950,000 FHBG price cap for eligible buyers.
What does borrowing capacity actually mean?
Borrowing capacity is the maximum a lender will offer you based on what you earn, what you owe and what you spend. It is not the same as what you can afford to repay, and it is not fixed across lenders. Two lenders can assess the same application and arrive at numbers that differ by more than $100,000.
The reason is that lenders use different models, different expense benchmarks and different policies on income types. One counts your overtime in full. Another shades it to 80%. One counts your HECS repayment as a live commitment. Another treats it more leniently. The number you received last time is one lender's answer to one version of your application.
How do lenders calculate what you can borrow in South East Melbourne?
Lenders start with your gross income, then subtract what they estimate you need to live and what you already owe. They run that figure against the repayments on the loan you're applying for, at a rate that is higher than the actual rate. The APRA serviceability buffer requires lenders to add 3.0% on top of your actual rate when assessing whether you can meet repayments. At current levels, that puts the assessment rate at roughly 9% or above, depending on the product.
Living expenses are measured against the Household Expenditure Measure, a benchmark from the Melbourne Institute. If your declared expenses come in below HEM, the lender substitutes HEM. Declaring lower expenses than you actually have does not increase your capacity; it just means the lender's benchmark does the work instead.
Your existing commitments are then counted separately. Credit card limits are assessed at approximately 3% to 3.8% of the limit per month, regardless of your actual balance. A card you never use with a $20,000 limit is treated as though you are spending $600 to $760 a month on it.
The most common thing we see is someone who has reduced their credit card balance to almost zero and assumes that's done the work. The balance doesn't matter. What the lender counts is the limit, and that's the number that needs to go.
Evelyn Clark · Director, Mortgage & Finance Broker · Chat to Evelyn →
What commitments and expenses most reduce your borrowing power?
Not all commitments hit your capacity equally. Some are fixed and visible; others are assessed by a formula that catches people off guard.
The four commitments that move the number most:
- › Credit card limits: assessed at roughly 3% to 3.8% of the total limit per month, fully drawn, regardless of the balance you carry. A $15,000 limit across two cards can reduce your borrowing capacity by $80,000 or more.
- › Personal loans and car finance: the remaining repayment schedule is counted as a monthly commitment in full. Paying these down or out before applying can materially change the outcome.
- › HECS/HELP debt: compulsory repayments are income-tested and treated by most lenders as an ongoing commitment. The repayment, not the balance, is what reduces your borrowing power.
- › Buy now, pay later accounts: most lenders treat active BNPL accounts as commitments. Even small limits can appear on bank statements and affect the assessment.
- › Existing investment loans: rental income is typically shaded to 80% of gross, with holding costs added on top. Net, the investment property may reduce rather than increase what you can borrow for a new purchase.
Source: APRA; industry-standard lender assessment practice.
What specific steps increase borrowing capacity before you apply?
Some of these take a few days. Others take a few months. The ones with the biggest impact are almost always about reducing commitments rather than increasing income.
What actually moves the number:
- › Close credit cards you do not need: reducing your total credit card limit is the single fastest lever most applicants have. Closing a card takes a few days to process; the lender reads the limit, not the balance.
- › Pay out short-term debt: a personal loan with six months remaining is still a commitment the lender counts. Paying it out removes the monthly figure from the assessment entirely.
- › Close BNPL accounts: even a $1,000 Afterpay limit that sits idle can appear as a commitment on bank statements. Close accounts you are not using before the application.
- › Document variable income properly: overtime, shift allowances, commissions and bonuses that are consistent but not appearing on a single payslip are often undercounted. A year-to-date payslip showing total earnings carries more weight than a base-rate payslip alone.
- › Choose the right lender for your income type: lenders differ on whether they count overtime in full or shade it, how they average commission, and how they read a trust distribution. Applying to the lender whose policy suits your income structure makes a larger difference than almost any other variable.
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When does trying to increase your capacity not make sense?
Borrowing more is not always the right outcome, even when it is available. If reaching the higher figure requires closing every card, paying out two loans and waiting six months, the question is whether the property you can then afford justifies the delay and the cost of paying out those debts early. Sometimes the better answer is buying at a slightly lower price point now, building equity, and refinancing later from a stronger position.
There is also a difference between what a lender will offer and what is comfortable to repay. The assessment rate is 3.0% above your actual rate precisely because lenders know rates move. A borrowing capacity figure calculated at the ceiling of what you can service at 9% leaves no room for rate increases, job changes or unexpected costs.
If capacity is the problem and nothing above closes the gap, a guarantor structure from a parent or family member can remove the LMI hurdle entirely and reduce the effective LVR, which changes the lender's assessment. That is a different conversation but worth having before ruling it out.
How do mortgage brokers help buyers increase their borrowing capacity in South East Melbourne?
The lender choice decides the outcome here more than most buyers realise. Three policy differences move the number between lenders, and they're not published side by side anywhere.
- › Variable income counting: some lenders take overtime and shift allowances in full once the history is there; others apply a consistent discount. That one policy difference can move the assessed income figure by tens of thousands annually.
- › Living expense benchmarks: lenders use different versions of HEM calibrated to household size, location and income. The benchmark floor differs between lenders, which means the net income figure differs even when the gross income is identical.
- › Investment property treatment: where a buyer has an existing rental property, lenders differ on how much of the rental income they count and how they load the holding costs. The right lender for an investor with one property can produce a materially different result than the wrong one.
Comparing across the panel before applying is how you find the lender whose model suits your income and commitments, rather than learning after the fact which one would have worked better.
Where someone has consistent overtime but only a base-rate payslip in front of them, I'll usually ask for the year-to-date earnings figure before we go anywhere near a lender. That one document often adds more to the assessed income than any other single step.
Evelyn Clark · Director, Mortgage & Finance Broker · Chat to Evelyn →
What goes wrong when buyers try to increase their borrowing capacity?
Where applicants lose ground:
- › Multiple applications: each lender application creates a credit enquiry that stays on the credit file for five years. Applying to three lenders in a fortnight to find who offers the most can reduce the capacity of the lender who eventually agrees to proceed.
- › Closing cards too late: a credit card closed the week before application may not yet be reflected in bureau data. Lenders check limits at the time of assessment, and the timing matters. Close cards at least 30 days before applying to give the bureaux time to update.
- › Paying down debt instead of paying it out: reducing a personal loan balance improves your financial position but has minimal effect on capacity. The lender counts the repayment schedule, not the balance. Paying a loan out entirely removes the commitment; halving the balance changes very little.
- › Optimising for the wrong lender: restructuring your commitments to suit lender A and then discovering lender B would have given you more without the restructuring is a common and avoidable outcome. Compare across the panel before making changes, not after.
Source: OAIC (credit file retention); APRA (serviceability buffer).
Frequently Asked Questions
How much does closing a credit card increase borrowing capacity?
It depends on your income, but a $10,000 credit card limit can reduce borrowing capacity by $40,000 or more. Lenders assess limits at roughly 3% to 3.8% per month as though fully drawn, so reducing total limits has an outsized effect relative to the effort involved.
Does paying off HECS debt before applying increase what I can borrow?
Sometimes, but only for a small remaining balance. Lenders count the compulsory repayment as a commitment, not the balance. Paying out a large HECS debt typically costs more cash than it recovers in capacity, so that money is usually better held for the deposit.
Does the APRA debt-to-income cap affect how much I can borrow in South East Melbourne?
It can. APRA limits authorised lenders to writing no more than 20% of new lending at a debt-to-income ratio of six times income or above. If a lender is near that threshold, a file that would otherwise be approved may be declined regardless of serviceability.
Can adding a partner to the application increase borrowing capacity?
Usually yes, if their income increases the net position after their own commitments are counted. A partner who earns well but carries a large personal loan or credit card limit may add less capacity than expected, so it depends on their full financial picture.
Is a non-bank lender worth using to get a higher borrowing limit?
Non-bank lenders are not subject to the APRA debt-to-income cap, which means they can write lending above six times income where the file stacks up. They are a legitimate part of the panel and worth including in the comparison, not a fallback of last resort.
Should I use a mortgage broker or go directly to my bank to find my borrowing limit?
A mortgage broker, every time. Your bank gives you one answer using one model. A broker compares how your income and commitments land across multiple lenders and finds which one gives you the strongest position for your specific situation.
Your Next Steps
For most buyers in South East Melbourne, the borrowing capacity they've been quoted is not the number they're stuck with. It's the number one lender arrived at with one reading of their application. The difference between that figure and what the right lender would offer is often the difference between the property they can buy now and the one they've been waiting for.
The right lender for your income and commitments depends on your situation, and that's a conversation worth having. Talk to the EverLend team or call 03 7036 3356, and we'll compare your options across 60+ lenders.
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External Resources
EverLend · South East Melbourne · Ever Lend Pty Ltd (ACN 625 080 515), authorised under Australian Credit Licence 517192 · General information only - this article does not constitute financial advice. Please consider your own circumstances and seek professional advice before making any financial decisions.
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