The short answer
The bank is not assessing your life. It is assessing its own version of your life, and the bank's version of your life costs more than your version.
The gap comes from five places: HECS, the car loan, credit card limits, buy now pay later, and rent the bank counts even when you don't pay any. Once you see how the bank's version gets built, every confusing line makes sense. Better than that: most of the lines turn out to be movable.
Somewhere between what you earn and what the bank says you can borrow, tens of thousands of dollars go missing. You have done your own budget. You know what you spend. The lender's number still comes back lower than yours, and nobody at a branch can tell you where the gap went. I run these numbers every week from the van, and the answer is almost always the same.
The bank's version of you
When a lender works out your borrowing power, it does not ask what you actually owe or what you actually spend. It builds a worst-case version of you on paper and lends to that person instead. Every credit limit you hold is treated as fully drawn, because you could draw it tomorrow. Every fixed repayment is treated as committed money, every month, no matter what happens to you. And where your life is missing an expense the bank thinks you will eventually have, it pencils one in for you.
Your discipline never enters the calculation. The card you clear in full every month, the instalments you have never once missed, the rent you have avoided by staying with family: none of it counts in your favour. The assessment runs on limits, commitments and assumptions, not conduct.
That is not the bank being unfair, exactly. It is lending you thirty years of money, so it prices the version of you it can prove on paper, not the version you know yourself to be. But it means the question in this page's title has a precise answer. Your borrowing power is low because of the gap between your version of your life and the bank's version, and that gap comes from five places. Each one has its own page with the full numbers. Here is how they fit together.
Five places the gap comes from
1. The debt everyone fears: HECS. Nearly everyone assumes HECS works like a car loan: owe more, lose more. It does not. Lenders assess HECS as a percentage of what you earn, not what you owe, so a $20,000 balance and a $60,000 balance on the same salary reduce your borrowing power by exactly the same amount. Which is why paying it off early almost never buys back what it costs: one client weighed putting $30,000 of savings into clearing hers, and the gain would have been roughly $12,000 of capacity, with the deposit gone. The full arithmetic, and the few cases where paying it down does stack up, is in how much a HECS debt affects your borrowing power.
2. The debt nobody fears: the car loan. The exact inverse of HECS. Same money owing, roughly ten times the damage, because a car loan is a fixed repayment the lender counts against you every month for the life of the loan. From two real files: $21,000 owing cost about $80,000 of capacity, and a $170 a week repayment cost a teacher about $110,000 of purchasing power, the entire difference between a house and a two bedroom unit in her town. If you are going to worry about one debt before a home loan, worry about this one: does a car loan stop me getting a home loan has both files and the traps nobody sees coming.
3. The card you never use. A credit card is assessed at its limit, not its balance. Clear it in full every month, never pay a cent of interest, and the lender still treats it exactly the same as maxed out, because on paper you could draw the lot tomorrow. My rule of thumb from running these numbers week in, week out: multiply the limit by five and that is roughly the capacity it costs you. A $10,000 card you never touch is quietly taking about $50,000 off what you can borrow. It is also the only debt on your file you can shrink with a phone call. Does my credit card limit affect my borrowing power has the full table and the safe order to reduce or close in.
4. The Afterpay quietly stacking on top. Buy now pay later gets treated like a credit card too. The limit counts, not what you owe, and a lot of banks apply the same times-five logic, so a $1,000 limit is roughly $5,000 off your capacity. It also gets read twice: once as a debt in the calculator, and once as conduct when a human assessor reads the instalment debits in your statements. Does Afterpay affect my home loan application covers when it matters, when it does not, and the tidy-up to do before you apply, not during.
5. The rent you do not pay. The strangest one on the list. If you live rent free with family and you are buying an investment property while staying at home, most lenders add a rent expense to your assessment anyway, commonly around $150 a week, on the logic that nobody lives in their parents' spare room for thirty years. That is roughly $7,800 a year counted against you for money that never leaves your account. A small number of lenders apply no notional rent at all, which is why this one policy setting can move your number further than any conversation about rates. Why does the bank add a rent expense explains it properly, including why most first home buyers never encounter it.
Same person, different number at every lender
Here is the part that turns this from trivia into money. None of these settings is a law. Notional rent is a policy choice, and the figure is different at every lender. Card limits and instalment debts get plugged into every calculator a little differently. How a novated lease or a dealer finance repayment is read varies too. Which is why the same file gets genuinely different borrowing power at different lenders, and why a branch can never really answer this page's question: the only rule book they can check is their own.
So before you conclude your borrowing power is low, it is worth being precise about the claim. It is low at one lender, under one set of assumptions, on the file as it stands today. All three of those things can change.
The five questions, one by one
Each of these is a straight answer to one question, with the real client numbers behind it. Start with the one that sounds like you.
Straight Answer
How much does a HECS debt affect your borrowing power?
The balance is almost irrelevant, and paying it off early rarely buys back what it costs. Thirty grand to gain twelve, from a real file.
Straight Answer
Does a car loan stop me getting a home loan?
Roughly four dollars of borrowing power lost per dollar owing. The teacher who blamed the wrong debt, and the finance that never shows on your file.
Straight Answer
Does my credit card limit affect my borrowing power?
The limit counts, not the balance. Times five is the rule of thumb, and the fix can be a phone call rather than a payoff.
Straight Answer
Does Afterpay affect my home loan application?
Treated as a credit limit and read twice by the assessor. Usually the cheapest fix on this whole list.
Straight Answer
I live rent free with family. Why does the bank add a rent expense?
Notional rent: around $150 a week at most lenders for rent you never pay, and a couple of lenders that count nothing at all.
The honest bit: most of this you can fix without me
Closing a buy now pay later account you do not really use is free and takes a few minutes in the app. Reducing a credit card limit is a phone call to your own bank. Neither needs a broker, and anyone who charges you for them is selling you your own shoelaces.
Just as important, sometimes the right move is to do nothing. Paying off HECS rarely stacks up. Paying out the car with the cash you need at settlement swaps one ceiling for another, because capacity and deposit are separate constraints and you have to clear both. And keeping a card limit as your emergency buffer is a legitimate choice, as long as you know what it is costing you and choose it anyway.
Where I actually earn something is at the edges: when you are borrowing near the top of your capacity and five grand of limit is the difference between the property you want and the one you settle for, or when the way different lenders treat the same set of limits and assumptions changes your number by more than any tidy-up could.
The one move to make
Before you pay off, close or shuffle anything, price it. Every one of these five gaps has a knowable cost in borrowing power, which means every fix has a knowable return, and you can see it before you spend a dollar. Sequence matters too: changes go in before the application, not halfway through an assessment.
Half an hour with your real numbers settles which of the five is actually setting your ceiling. In my experience it is usually not the one you have been worrying about.
Find out where your gap is coming from
Give me half an hour and I'll run your borrowing power with your limits and debts in, and with them out, so you can see what each one is costing you. If the honest answer is that you're fine as you are, that's the whole call.
No application, no credit check, nothing on your file. Just the numbers.
Common questions about low borrowing power
Does paying my credit card off in full every month help?+
No. Lenders assess the limit, not the balance, because on paper you could draw the lot tomorrow. A card you clear every month is treated the same as one that is maxed out. Multiply the limit by five and that is roughly the capacity it costs you. The upside: it is the only debt on your file you can shrink with a phone call.
Should I pay off my HECS before applying?+
Almost certainly not. HECS is assessed as a percentage of what you earn, not what you owe, so the balance barely matters. On an $80,000 salary, clearing a $30,000 HECS debt bought one client roughly $12,000 of extra capacity, with her whole deposit gone in the process. It only stacks up in a handful of specific situations.
Why does the bank count rent I don't pay?+
That is notional rent. If you live rent free with family and buy an investment property while staying at home, most lenders build a rent expense into the assessment anyway, commonly around $150 a week, because nobody stays in the spare room for thirty years. It does not apply when you are buying a home to live in, and a small number of lenders apply none at all.
Will Afterpay stop me getting a home loan?+
On its own, no. Buy now pay later is treated like a credit card limit, so a $1,000 limit costs roughly $5,000 of capacity as a rough measure. It matters when you are near the top of what you need to borrow, or running several services at once. Closing an account you do not use is free and takes minutes.
Next question
Your bank said no. That doesn't mean you can't afford it.The rules behind a knock-back, and what changes the answer.
Related reading
The First Home Guarantee, explained Buying your first homeGot a question this page didn't answer? Send it to me and it goes on the list.