Most people assume their borrowing capacity is determined solely by their income. While income is important, lenders spend just as much time examining your ongoing commitments and living expenses.
I’ve seen many clients surprised to learn that a strong salary doesn’t always translate into a strong borrowing capacity. In fact, some of the most common household expenses can reduce how much a lender is prepared to offer by tens—or even hundreds—of thousands of dollars.
If you’re planning to buy your first home, upgrade, invest or refinance, here are six of the biggest borrowing capacity killers lenders look at.
1. Credit Cards
Even if you pay your credit card balance in full every month, lenders assess the entire credit limit, not just what you owe today.
For example:
- Credit card limit: $20,000
- Current balance: $0
Most lenders will still assume a monthly commitment based on the full $20,000 limit. Many borrowers are shocked to discover that unused credit cards can significantly reduce their borrowing power.
What to do:
- Close any credit cards you no longer use.
- Reduce limits if you don’t need the full amount.
- Consider consolidating multiple cards into one lower-limit facility.
2. Car Loans and Personal Loans
Vehicle finance is one of the most common reasons borrowing capacity drops unexpectedly. Lenders view these repayments as a fixed monthly commitment that must continue regardless of your new home loan.
A $700 monthly car repayment may seem manageable, but from a lender’s perspective, it’s money that can no longer be used towards a mortgage repayment.
What to do:
- Pay out small personal loans where possible.
- Consider whether upgrading a vehicle is worth the impact on future borrowing.
- Review finance structures before applying for a home loan.
3. Private School Fees
Many families don’t realise that lenders include school fees as part of their living expenses.
Annual school fees can easily reach:
- $10,000–$20,000 per child
- More for secondary education or multiple children
These costs directly impact how much disposable income lenders believe is available to service a mortgage.
What to do:
- Be realistic about future education expenses.
- Discuss school fee commitments with your broker early.
- Plan ahead if purchasing a larger family home.
4. Private Health Insurance
Private health cover is a valuable way to protect your family, but it also forms part of your ongoing expenditure.
While the impact may seem small compared with other commitments, lenders assess all recurring expenses when determining serviceability. For many households already managing multiple commitments, every monthly expense matters.
What to do:
- Review your policies regularly.
- Ensure you’re not paying for cover you no longer need.
- Compare providers and benefits to maximise value.
5. Life Insurance and Income Protection
As a mortgage broker, I strongly encourage clients to protect themselves and their families through appropriate insurance. However, lenders still treat premiums as an ongoing commitment.
This may include:
- Life insurance
- Trauma insurance
- Income protection insurance
- Total and Permanent Disability (TPD) cover
While the impact on borrowing capacity is usually outweighed by the protection these policies provide, it’s important to understand that lenders do factor these expenses into their assessment.
What to do:
- Don’t cancel important cover solely to increase borrowing capacity.
- Review policies to ensure premiums remain competitive.
- Seek professional advice to balance protection with affordability.
6. Strata and Body Corporate Fees
This is one of the most overlooked expenses when purchasing units, apartments and townhouses.
Lenders factor annual strata and body corporate costs into their servicing calculations because these fees are ongoing and unavoidable. Depending on the property, fees can range from a few thousand dollars per year to well over $10,000 annually.
Facilities such as:
- Pools
- Gyms
- Lifts
- Concierge services
can significantly increase body corporate costs and ultimately reduce borrowing capacity.
What to do:
- Request strata statements before purchasing.
- Understand both current fees and any proposed special levies.
- Factor these costs into your overall budget—not just your loan repayment.
The Bottom Line
When it comes to borrowing capacity, income is only half the story. Your credit cards, car loans, school fees, insurance premiums and strata expenses all play a role in determining how much a lender is willing to lend.
The good news is that most of these factors can be planned for well before you submit a loan application. A simple review of your current commitments can often uncover opportunities to improve your borrowing position and help you achieve your property goals sooner.
Thinking About Buying, Refinancing or Investing?
Before you start house hunting, it’s worth understanding exactly how much you can borrow and what may be holding you back.
A quick borrowing capacity review today could save you months of frustration tomorrow.
About the Author
Kelly Gorman is a Finance Broker at MoneyQuest Thornbury, with more than 20 years of experience in finance. She provides clear guidance across home loans, refinancing, commercial lending, car and asset finance, and supports first home buyers, investors, families, self-employed clients and small business owners. Kelly takes a practical, hands-on approach, helping clients understand their options and make informed borrowing decisions with confidence.
To contact Kelly Gorman, click here.