How to Make the Most of your Borrowing Power When Every Dollar Counts

Over the past year we have seen the Australian lending landscape change for property buyers. APRA restrictions have been making it increasingly difficult for investors to access funds and this has now had a flow on effect to owner occupiers. Banks and other lenders are scrutinizing all applications and this means that expenses we didn’t previously consider are having a negative impact on our borrowing power.

Recently we have had a number of clients who have wanted to upgrade their family home but found that their “affordable” investments were limiting their total budget. What I am talking about here are properties that they have held for some time that are located in regional areas and/or smaller capital cities. These properties haven’t appreciated at the same rate as real estate in Sydney and Melbourne. Effectively, they have been losing ground against property in these two cities. And now, because the banks have been tightening up their lending criteria, they are finding that these under performing investments are effectively costing them a larger home.

I have often written about the importance of looking for capital growth when buying an investment property. Now capital growth is more important than ever because a poor performing asset can drain your borrowing power for a good asset.

Now capital growth is more important than ever because APRA has made sure that a poor performing property can drain your borrowing power for a good asset. #investment #BuyersAgent Click To Tweet

But that’s not all! Budgeting and discretionary spending in other areas of our lives can have a dramatic impact on our borrowing power. I’ve asked James Keilor, Senior Credit Advisor at Oxygen Home Loans, to give us a few lending credit policy points that can make a big difference in getting the loan you need.

James Keilor’s 6 tips for improving your borrowing power:

  1. Something as simple as reducing credit card limits from say $30k to $5k can increase your borrowing power by up to $80k! Credit cards are looked at by lenders as being a commitment up to the limit, and they have to assume that if your card was fully drawn, how would that impact your ability to pay your mortgage!
  2. Car loans and personal loans also have a big impact on your loan. Paying out a car loan can with say  monthly payments of $460pm can equate to up to adding a further $60k in additional borrowing power.
  3. Negative gearing.  Some lenders factor in negative gearing benefits in calculating borrowing power, whereas some now do not. This can have a massive impact on borrowing power.
  4. Joint debts. A few lenders will consider allowing other parties to be responsible for their share in any joint debts, whereas most do not. This means those lenders with this policy in place will allow considerably more borrowing capacity in those circumstances.
  5. Credit report issues. Some lenders take more notice of individual credit report entries than others. It is always best practice to obtain a copy of your credit report to see if there are any entries that may affect your borrowing capacity. A lot of problems if identified before application can be mitigated or managed to get the best results with a lender.
  6. Summary, getting good quality advice as early as possible in the borrowing process can make all the difference in getting the deal done!

If you’d like to speak to James about your borrowing power, please call him on 0418 270 288 or send him an email.

If you’d like to find out more about buying a property investment that won’t be a drain on your future, book in for a one-on-one property investor session with Veronica.

Further reading:

How a good mortgage broker can save you more than money

9 Reasons You Should Avoid Buying A Property

When Is The Best Time To Buy A Property And Stop Looking?

Published: 13 December 2017.

Revised: 18 December 2018.

DISCLAIMER: Good Deeds blog/buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.


Free e-book for Owner Occupiers

7 Steps To Buy Your Dream Home

Free e-book for Investors

How to Choose a Low Risk Investment Property