Why Did My Home Loan Pre-Approval Come In Lower Than Expected? (2025 Australia Guide)

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Across Australia in 2025, thousands of buyers are receiving home-loan pre-approvals that are dramatically lower than what they expected — sometimes $50k, $100k or even $200k+ below the online calculators they used. This is common in Sydney, Melbourne, Brisbane, Perth, Adelaide and regional areas due to rapidly changing bank policies, higher assessment interest rates, tighter lending rules and revised living-expense benchmarks.

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This guide explains exactly why your pre-approval came in lower, which factors banks changed behind the scenes in 2024–2025, and how Matcheroo AI helps Australians find lenders whose calculators may allow them to borrow more.

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1. Banks Use Higher Assessment Interest Rates Than You Think

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Online calculators often use simple repayment formulas.
Banks do not.

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Your pre-approval is based on a stress-tested rate, usually:

Actual rate + 3% buffer

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Example:

• Home loan rate: 5.8%

• Assessment rate: ~8.8%

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This higher rate makes your theoretical monthly repayments much larger, lowering your borrowing capacity — especially in high-cost cities like Sydney and Melbourne.

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2. Your Actual Living Expenses Were Higher Than the Bank’s Minimums

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Banks cross-check your:

• Bank statements (3–6 months)

• Subscriptions

• Groceries

• Loans and direct debits

• Lifestyle spending

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If your real expenses are above the HEM benchmark (Household Expenditure Measure), banks must use the higher number.

Common in:
• Sydney Eastern Suburbs

• Melbourne Inner East

• Brisbane’s inner ring

• Perth coastal suburbs

• Adelaide inner south.

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Higher expenses = lower borrowing power.

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3. HECS / HELP Reduced Your Assessed Income

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Banks must subtract compulsory HECS repayments.

A HECS debt of even $15k–$40k can reduce borrowing capacity by:

• $20k–$70k depending on the lender

• More for high-income borrowers

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This is one of the biggest surprises for first-home buyers across Australia.

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4. Your Debts Count More Than You Expected

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Banks treat debt very differently than borrowers assume.

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They assess:

• Credit cards at full limit, not balance

• Car loans as long-term fixed repayments

• Buy Now Pay Later as ongoing commitments

• Personal loans at full monthly repayment

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Example:
A $10k credit card limit may reduce borrowing power by $20k–$40k.
A $30k car loan can reduce borrowing power by $60k–$120k.

Many pre-approvals drop sharply once lenders factor these in.

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5. Online Calculators Don’t Apply Real Bank Policies

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Most online mortgage calculators overshoot borrowing power because they:

• Don’t use true assessment rates

• Don’t include HECS

• Don’t include credit-card limits

• Don’t include living-expense benchmarks

• Don’t include DTI (debt-to-income) caps

• Don’t include shading for casual/bonus/overtime income

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This creates a false expectation — your pre-approval reflects the real calculation, not the online one.

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6. Your Income Was Discounted (Shaded) by the Bank

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Australian lenders do not treat all income equally.

Income shading affects:

• Casual income (accepted at 50–80% depending on lender)

• Commission

• Bonuses

• Overtime

• Allowances

• Self-employed income (usually averaged over 2 years)

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Many buyers in healthcare, trades, retail, mining, construction, hospitality and emergency services see pre-approvals drop due to income shading.

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7. DTI Limits Reduced Your Pre-Approval

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Many banks now enforce strict Debt-to-Income caps, usually:

DTI 6

Example:
Income = $100,000
Max total borrowing ≈ $600,000

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If you already have car loans, credit cards or investment debts, your pre-approval can drop significantly.

This is extremely common in expensive markets like Sydney, Melbourne and Brisbane.

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8. The Bank Didn’t Accept Your Employment Type Fully

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Borrowers are often surprised when the bank excludes or reduces income due to:

• Being in probation

• Being newly casual

• Working multiple jobs

• Changing industries

• Irregular overtime

• Contracting or part-time income

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This can reduce borrowing capacity dramatically.

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9. Rental Income Was Shaded or Discounted

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Investors often receive lower borrowing power because banks:

• Apply 20–30% shading to rent

• Add vacancy and management assumptions

• Limit negative gearing add-backs

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Different lenders treat rent very differently.

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10. Your Bank Uses a More Conservative Calculator Than Others

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The biggest reason pre-approval comes in lower than expected:

Every bank in Australia uses a different serviceability calculator.

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Some banks:

• Shade income more

• Use higher HEM

• Use higher buffers

• Allow lower DTI

• Exclude overtime/bonuses

• Accept less rental income

• Apply higher living-costs for children

• Apply stricter credit score thresholds

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Two lenders can differ by $50k, $100k or even $200k for the exact same borrower.

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This is normal — and exactly why Matcheroo AI exists.

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How Matcheroo AI Helps You Find Higher Borrowing Power

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Matcheroo AI analyses lending policies across multiple Australian lenders and identifies which bank’s calculator is most favourable for your specific profile.

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Matcheroo AI can highlight lenders that:

• Accept more of your casual/overtime/bonus income

• Apply lower expense benchmarks

• Use more favourable HECS rules

• Allow higher DTI thresholds

• Shade rental income less

• Use lower assessment rates

• Treat dependants differently

• Allow debt add-backs

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This often reveals a lender where you can borrow $50k–$180k more without changing anything about your financial situation.

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What You Can Do If Your Pre-Approval Came in Low

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To increase your borrowing power fast:

• Reduce credit card limits

• Pay off car loans or personal loans

• Remove Buy Now Pay Later accounts

• Tighten spending for 6–8 weeks

• Fix any credit-report errors

• Wait out probation if possible

• Use Matcheroo AI to compare lenders’ calculators

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These changes can materially lift your borrowing power in days or weeks.

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Summary: Why Your Home Loan Pre-Approval Was Lower Than Expected

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Your pre-approval likely dropped because banks now:

• Use higher assessment interest rates

• Apply tighter DTI caps

• Use real spending, not your estimates

• Shade income types

• Apply HECS deductions

• Treat credit cards and BNPL harshly

• Use stricter serviceability formulas

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Borrowing power varies significantly between banks.

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Matcheroo AI helps Australians identify where they may be able to borrow more based on their unique financial profile.