Why Is My Borrowing Power So Low in Australia? (2025 Expert Guide)

Borrowing power across Australia has dropped sharply over the past two years. Buyers in Sydney, Melbourne, Brisbane, Perth, Adelaide and regional areas are all discovering that the maximum loan size banks will offer in 2025 is significantly lower than before. Higher interest rates, stricter lending rules, updated cost-of-living benchmarks and more conservative lending policies have reshaped how banks calculate borrowing capacity nationwide.

Borrowing power depends on how much a lender believes you can safely repay. Every bank uses a different calculator, assessment rate and income policy, which means your borrowing limit can change massively from lender to lender. This guide explains why your borrowing power is low, what affects it, and how Matcheroo AI helps Australians find lenders who may offer a higher borrowing estimate based on their specific profile.

Borrowing Power Has Dropped Across Australia

Across NSW, Victoria, Queensland, Western Australia and South Australia, banks have tightened their lending assessments. Whether you are purchasing in the Eastern Suburbs of Sydney, Inner Melbourne, Brisbane’s bayside, Perth’s western corridor or Adelaide’s inner ring, the same national factors are reducing borrowing amounts.

These are the key reasons borrowing power is lower in 2025:

Higher Interest Rates Mean Higher Assessment Rates

Banks don’t assess you at the interest rate you apply for — they must “stress test” your loan at an artificially high rate, often around 3% above the actual rate.

If your real rate is 6.0%, your assessment rate may be around 9.0%.

A higher assessment rate means higher theoretical repayments, which reduces how much you can borrow regardless of your actual comfort level.

HECS/HELP Repayments Reduce Your Income

HECS has become one of the biggest factors reducing borrowing power for young Australians. Lenders must factor in compulsory HECS repayments, which lowers your assessable income. Even a $10,000–$30,000 HECS balance can reduce borrowing power significantly depending on the lender.

Car Loans, Credit Cards and Buy Now Pay Later Reduce Capacity

Banks assume:

Your credit card limit is fully drawn
Your car loan runs its full term
Afterpay/Zip is ongoing
Personal loan repayments continue unchanged

A single $20,000 car loan in Sydney or Melbourne can reduce borrowing power by $50k–$90k.
Even a $5,000 credit card limit can reduce borrowing capacity by tens of thousands.

Living Expense Benchmarks (HEM) Are Higher in 2025

Banks apply minimum living expense benchmarks regardless of your personal lifestyle. These benchmarks increased nationally due to inflation and higher household costs in NSW, VIC, QLD, WA and SA.

Even if you live frugally, lenders must use their updated HEM figures, which reduces your surplus income and borrowing power.

Casual, Probation and Variable Income Is Discounted

Lenders treat income types differently:

Casual income often shaded to 50–80%
Overtime averaged over 12–24 months
Bonuses averaged and sometimes heavily discounted
Probation income may be excluded
Commission income assessed conservatively

This affects workers in healthcare, trades, retail, hospitality, emergency services and gig-based employment across Australia.

Short Employment History Reduces Borrowing Capacity

If you’ve recently changed jobs, industries or started new casual work, lenders may use less income until you show more stability. This impacts many first-home buyers and young professionals.

Debt-to-Income (DTI) Caps Limit Borrowing

Many Australian banks now restrict lending to a maximum DTI ratio of around 6.

If you earn $100,000, your maximum borrowing under DTI 6 is roughly $600,000.
This constraint is especially impactful in high-cost markets like Sydney and Melbourne.

Dependants Increase Your Assessed Living Costs

Each dependant increases your assumed monthly expenses, which reduces the surplus income used in the bank’s calculator. Borrowing power can drop dramatically for families depending on the number of children.

Credit Score Issues Trigger Conservative Assessments

If your credit score has dipped due to late payments, high credit utilisation or frequent enquiries, lenders may:

Reduce your maximum borrowing
Increase the applied assessment rate
Tighten policy applied to your scenario

Even without defaults, a softer credit profile reduces borrowing power.

Why Different Banks Give Very Different Borrowing Power

This is one of the biggest sources of confusion for Australian borrowers:

Two lenders can give you vastly different borrowing estimates — sometimes differing by $70k, $120k or more — for the same income, debts and profile.

This happens because every bank has different policies around:

Overtime
Bonuses
Commission
HECS
Credit cards
Car loans
Living expenses
Dependants
Self-employed income
Minimum income thresholds
Negative gearing
Rental shading
DTI caps
Internal servicing calculators

One bank may say “No, you can only borrow $480k”, while another may say “Yes, you qualify for $620k.”

This inconsistency is normal — and this is where Matcheroo AI becomes powerful.

How Matcheroo AI Helps Australians Find Higher Borrowing Power

Matcheroo AI analyses how multiple Australian lenders will assess your scenario — not just the rate they offer. This is the real reason borrowing power varies so widely.

Matcheroo AI identifies:

Lenders who count more of your income
Banks with higher DTI thresholds
Lenders more flexible with casual or probation income
Banks that treat HECS more favourably
Lenders who reduce living expense assumptions differently
Where your debts impact your borrowing the least
Scenarios where you may receive a significantly higher borrowing estimate

Many Australians discover they can borrow $50k–$150k more with a lender whose calculator suits their profile — without changing anything about their finances.

How to Increase Your Borrowing Power in Australia

Practical steps Australians take to improve borrowing capacity include:

Reducing or closing credit card limits
Paying down personal loans or car loans
Removing Buy Now Pay Later services
Improving savings patterns before assessment
Demonstrating employment stability
Reducing household spending
Using Matcheroo AI to compare lender policies

These strategies genuinely influence how banks calculate borrowing power in 2025.

Summary: Why Your Borrowing Power Is Low in 2025

Borrowing power has fallen across Australia due to higher interest rates, stricter lending rules, increased HEM benchmarks, HECS obligations, credit limits, employment type and lender-by-lender policy differences.

However, borrowing power is not the same at every bank.

Different lenders assess the exact same applicant very differently.

Matcheroo AI helps you understand where your income, debts and expenses are assessed most favourably — giving you a clearer pathway to achieving higher borrowing capacity.

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