How much can you borrow? Understanding your borrowing power in 2025
- Luke McKenzie
- Jul 31
- 3 min read
Why borrowing power matters
Whether you're purchasing your first home, upgrading, or refinancing in Perth’s evolving market, your borrowing power - how much a lender is willing to loan you - is a crucial consideration. It’s about more than your income; it reflects your entire financial picture and how lenders assess your ability to repay.
Understanding what affects this figure gives you a stronger negotiating position and helps avoid surprises later in the loan process.
What affects borrowing power
1. Your income and expenses
Lenders assess your income after tax and subtract your living expenses to calculate how much of a mortgage you can afford. With inflationary pressure still being felt in parts of Perth, banks are applying tighter scrutiny to discretionary spending.
Tip: Tools like ASIC’s MoneySmart Budget Planner can help you assess your true financial position before applying.
2. Current interest rates and lender buffers
While the official cash rate remains stable for now, lenders often apply a buffer—typically 3% above the current interest rate—to test your ability to manage future rate rises. For example, if you're applying for a loan at 4.8%, you may be assessed on your ability to repay at closer to 7.8%.
This practice helps ensure you can keep up with repayments if rates climb and protects you from financial stress.
3. Your credit history and financial behaviour
Your credit report is one of the key tools lenders use to understand your financial reliability. It includes:
A detailed record of your repayment history on credit cards, loans, and utilities
Any defaults or missed payments
How many credit applications you’ve made recently
Your current outstanding debts
Even a few missed payments can reduce your borrowing capacity or impact the interest rate you’re offered. A clean credit report, on the other hand, can improve your chances of securing a better deal and potentially borrowing more.
If you’re unsure where you stand, consider requesting a copy of your credit report from Equifax or Experian to review your records before applying.
How to improve your borrowing capacity
If your borrowing power isn’t where you’d like it to be, there are actionable steps you can take to improve it:
Pay down existing debts: Reducing liabilities like credit card balances and personal loans can increase how much you’re able to borrow.
Strengthen your credit profile: Pay bills on time, avoid late payments, and reduce your number of recent credit applications.
Grow your savings: A higher deposit not only improves your borrowing power but may also help you avoid Lender’s Mortgage Insurance (LMI).
Cut back on discretionary spending: Lenders often review recent transaction history, so reducing takeout, subscriptions or unessential spending can work in your favour.
Borrowing power for couples vs individuals
Borrowing with a partner often increases the combined borrowing amount, but both applicants’ financial commitments are factored in. This includes any existing loans, dependants, or HECS-HELP debt.
In many cases, a joint application can lead to more favourable lending terms—but it’s important to approach this with transparency and a plan for shared financial responsibility.
We cover this topic further in Refinancing your home loan in 2025: Is now the right time?
Next steps: Book a borrowing power review
Aspire2Wealth’s lending specialists can help you:
Understand how much you can borrow in the current market
Review your credit health and income position
Provide tailored strategies for improving your loan readiness
Whether you're in the early stages of your property journey or looking to refinance, getting expert guidance early can make a real difference.
References
Aspire2 Wealth Advisers Pty Ltd ABN 42 125 897 903 is an authorised representative and credit representative of Charter Financial Planning Limited ABN 35 002 976 294, AFSL and Australian Credit Licence No. 234665.
This website contains information that is general in nature. It does not take into account the objectives, financial situation, or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
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