Six ways to boost your borrowing power

Australia’s official interest rate has gone up by 375 basis points since the Reserve Bank of Australia began its battle against inflation in May last year with the Reserve Bank unexpectedly raising the cash rate by 25bps to 3.85% last Tuesday.

With many lenders passing on the increases in full to their customers this, in turn, has more than doubled average owner-occupier variable mortgage rates, from 2.90% in April 2022 to 6.12% in May 2023.

But it’s not just homeowners that are hit hard by interest rate hikes; buyers are too, with the cumulative impact of 11 rate hikes shaving tens of thousands of dollars off the average buyer’s budget.

Generally speaking, a typical buyer's borrowing capacity will drop by 5% every time the RBA increases the cash rate by 50 basis points.

Six ways to boost your borrowing power

Fortunately, there are several factors beyond interest rates that can influence how much money you can borrow from a lender, such as your:

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?As a result, there are things you can do to boost your borrowing capacity, such as:?

1. Increasing income: This may sound like an obvious one but a higher income means you’ll have more money to repay your loan and thus borrow more.
2. Cutting back on unnecessary spending: Creating a budget and tracking your expenses can help you identify areas where you can reduce your spending, freeing up room in your budget and strengthening your deposit. ?
3. Reducing credit card limits: Lenders take into account the limit of your credit cards, not your actual debt when assessing your ability to repay a loan. ?Closing down unused cards or reducing unused limits can improve your situation.
4. Paying off existing debts: Retiring debt can increase your borrowing capacity by reducing your debt-to-income ratio.?This includes personal loans, car loans and even HEC’s.
5. Improving your credit score: Your credit score is a critical factor in your borrowing capacity as lenders use it to assess your creditworthiness and determine the interest rate on your loan.
6. Increasing your deposit size: A higher deposit means you're borrowing less, reducing the risk to the lender.

Finally, it’s important to note that different lenders assess your borrowing capacity differently, so it will vary from lender to lender. As a result, you can also maximise your borrowing capacity by applying to the right lender.

At Prowse Financial Group we offer a no obligation, no cost, initial meeting where we will talk through where you are financially now, where you would like to be in the future, and what we as a group can do to help you get there.

Looking to boost your borrowing power? Prowse Financial Group can match you to the right lender for your needs and circumstances. Get in touch by filling in this online form.

#mortgage #homeloans #homebuying Andrew Prowse Nick Prowse Brendan Prowse Anthony Wick