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$137,900: How Aussies can boost their borrowing budget

The Reserve Bank’s interest rate hikes mean Aussies can borrow less money from the bank.

Australian money notes. House for sale sign. Borrowing power concept.
Aussies' borrowing power has taken a hit, but there are some simple ways to give yourself a boost. (Source: Getty)

The amount of money Aussies can borrow from the bank has shrunk by thousands, thanks to the Reserve Bank’s relentless interest rate rises.

According to RateCity, the average Aussie has seen their maximum borrowing capacity plummet by $170,600 since the rate hikes started in May last year.

But there are a few steps you can take to claw back most of those losses and boost your budget by $137,900.

“It’s astounding what cutting up a credit card, and cutting back on unnecessary spending can do to your chances of getting approved on a home loan,” RateCity research director Sally Tindall said.

“That said, people planning to borrow every last dollar from the bank should pause and consider the alternatives before they jump in. Starting smaller, opting for an investment property, waiting and saving up for a bigger deposit are options all worth considering before maxing out your borrowing capacity.”

Here are four ways to give yourself a leg up.

Increase your income

Although it’s easier said than done, RateCity found getting even a small pay rise could boost your borrowing capacity by tens of thousands of dollars. For instance, a 4.25 per cent pay rise would see an Aussie earning the average wage receive an extra $3,911 per year.

Banks often look at three months’ worth of pay slips, so RateCity recommended having the conversation with your boss well ahead of time.

Close any credit cards

A credit card could “blast a hole in your borrowing power”, RateCity said, even if you pay off your balance in full each month. That’s because banks will assume you could max out your card.

If you have other debts, including on buy now, pay later platforms, it’s also worth paying off as much as you possibly can.

Look for a low rate

Banks will stress test your finances based on the rate you are applying for, plus an additional 3 per cent buffer. So, the lower your rate, the more money you can likely borrow.

Some lenders may have bigger risk appetites than others, RateCity said, so it can be worth speaking to a mortgage broker to get an idea of your borrowing power for different lenders.

Spend less, save more

If you are able to save up a bigger deposit, you may be able to avoid paying lenders mortgage insurance and borrow less money from the bank in the first place.

RateCity also recommended cutting back on discretionary spending, such as take-away coffee, Uber Eats and streaming platforms, as this can work against you when you are being assessed for a loan.

If you were able to implement all of these changes, RateCity estimated you could potentially borrow $137,900 more from the bank.

Borrowing power
Source: RateCity

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