What impacts your borrowing power?

When interest rates are high, borrowing power is substantially impacted – this is of course out of your control, so what is in your control? What can you do to improve your borrowing power?

Cut unnecessary credit

Regardless if you use the credit card or Buy Now Pay Later scheme or not, the limit – what is available to you to spend – impacts your borrowing capacity. $10,000 in credit limits on cards or facilities you don’t need can reduce your borrowing capacity by $80,000 – and this could substantially change the type of property or lender available to you.

These types of facilities are great tools, and we like having them for emergencies but think about cutting back the limits as much as possible if you’re looking to expand your borrowing power

If you have a card with 55 days interest free and you use this for your expenses, make sure it is paid in full and limit the card to around a bit more than your monthly expenses to keep your credit limits trim

Consider your discretionary spending

If you’re getting loan ready & you want to present your best, think about what you’re spending daily and what can be cut back. Takeaway is a no-no, as is gambling or excessive withdrawals – and over limits, overdrawn accounts or accounts in arrears will raise a red flag with lenders. If it looks like a loan it will be assumed to be a loan – so if you’re regularly making payments to something identify what it is and let us know up front. Consider re-negotiating your utilities and insurance costs and limiting spending.

The aim is to present yourself with a nice healthy surplus every month that the lender thinks is available for you to spend on the proposed repayments.

Private school fees, health and life insurances outside your super, your own strata costs – all of these have an impact on your borrowing capacity, but largely are out of your control. If you can, compare your insurances for better offers, consider how much longer you will be paying school fees for and let us know if there’s going to be a change.

Confirm your income – and keep it high

Now is not the time to drop back to casual as this will have a waiting period to confirm the regularity of your income, and, similarly if you regularly earn overtime or shift allowances keep this up – lenders can consider these types of income if they’re reflected in the overall year to date figure and also evident on recent payslips. What we mean by this is, if you earned overtime 3 months ago but no longer do, even if your year to date figure makes it apparent the lenders won’t consider the income as being available to make future repayments

Variable income such as bonus and commission history can be difficult to separate out from your basic income, we may ask for more information – this could be the actual payslips you’ve received these income types within for as much as the last two years, or a formal written confirmation from your employer of the actual income you have received over the same time frame. Also, if you’ve had a payrise in this time please send us the confirmation letter and the payslip immediately before so we can ensure all the income available is used.

Now is not the time to take leave, drop hours, change jobs etc – these kinds of changes will negatively impact your borrowing power.

Novated leases including running costs

We see a lot of professionals with salary sacrifice agreements which include the running costs of a shiny new vehicle. While it is attractive to have your tax reduced and a lovely new car to play with – understand that the cost of your travel expenses is included in this lease, and, will also be included on an averaging basis within the mandatory minimum living expenses your lender will consider. Essentially you’re double dipping on this cost and it has a huge impact. Any evidence you supply that separates out the running cost from the actual finance portion is handy, and, we do have a couple of lenders who will give you an “add back” allowance for these expenses but in general expect this to bite really heavily.

Salary sacrifices in general

Unless a salary sacrifice of any kind is voluntary we expect it to have an impact on your borrowing capacity. Often we see salary sacrifices for meal and entertainment cards, superannuation and vehicles. Expect to be asked to confirm if these can be cancelled or not, and if not, they do have a big impact.

Deposit

While your deposit actually does not have an impact on your borrowing capacity, it does go to the interest rates available to you – if the rate available is higher because of a lower deposit then expect the “assessment rate”, the rate your loan is tested at – to be higher, and this will impact your borrowing capacity.