Rising rates have quietly cut what Australians can borrow.
If the home you were eyeing a few years ago now feels out of reach, you’re not imagining it. The amount most Australians can borrow has dropped sharply since 2020, and the gap between then and now is bigger than many people realise.
This article explains exactly why your borrowing power has declined, what the numbers look like for individuals and couples, and what practical steps you can take to recover some of that capacity. Use our borrowing power calculator to see where you stand today.
The decline in numbers
The numbers tell a stark story. On average across lenders, Australians have around 32.58% less borrowing capacity than they did in 2020, and about 8.17% less than just a year ago.
For an individual earning $100,000 a year with a $10,000 credit card limit, approximate borrowing capacity at different deposit levels looks like this:
Couples see a similar picture. A couple purchasing at 80% LVR saw capacity drop from around $700,000 to $471,000 — a fall of nearly 33%. At 90% LVR, the drop was from $680,000 to $447,000, a fall of about 34%.
These are significant reductions that can mean the difference between buying in your target suburb and having to look further afield.
The RBA cash rate
The main driver of the borrowing power decline is the RBA cash rate. In 2020, the Reserve Bank cut rates to record lows, which pushed home loan interest rates down and gave Australians significantly more borrowing capacity. As rates climbed from 2022 onward, borrowing costs rose in step and capacity fell.
When the cash rate goes up, your lender’s variable rate typically follows. A higher interest rate means larger monthly repayments on the same loan amount. Because banks stress-test your application by adding a buffer rate on top of the actual interest rate, a higher starting rate produces a bigger reduction in what they’ll lend you.
Our article on RBA rate cuts and borrowing power explains how changes to the cash rate flow through to what you can borrow in more detail.
Deposit and LVR
Your deposit size affects how much you can borrow in two ways.
First, a larger deposit lowers your Loan-to-Value Ratio (LVR). A lower LVR signals less risk to the lender, which can qualify you for a better interest rate. A lower rate means lower repayments, which means the bank will lend you more.
Second, if your LVR is 80% or below, you typically avoid paying Lenders Mortgage Insurance (LMI). LMI is a one-off premium that protects the lender if you default, and it can add thousands to your upfront costs. Saving a 20% deposit removes this cost entirely.
Even if you can’t stretch to 20%, saving as much as possible before you apply is one of the most effective ways to recover some lost borrowing capacity. Every additional percentage point in your deposit can improve the interest rate you qualify for and reduce your monthly repayments.
Buffer rates vary
Not all lenders calculate borrowing capacity the same way. Every lender adds a buffer rate on top of the actual interest rate to stress-test whether you could still afford repayments if rates rose. Most lenders use a 3% buffer — so if your rate is 6%, they test at 9%.
Some non-bank lenders in the market use a lower buffer, such as 2%. That means they test at 8% instead of 9%, which produces a meaningfully higher borrowing capacity.
Lenders also use different living expense benchmarks when assessing serviceability. A lender with more generous benchmarks may assess you as able to borrow more, even at the same income level. A mortgage broker can identify which lenders are likely to offer you the best outcome based on your specific income and expense profile — this is one area where professional advice can make a material difference to your buying power.
Steps to improve
There are practical things you can do to recover borrowing power.
See how different repayment scenarios play out using our loan repayment calculator.
Common questions
Q: How much has borrowing power fallen since 2020?
On average across lenders, Australians have around 32.58% less borrowing capacity than in 2020 and about 8.17% less than in 2023. The main cause is the rise in the RBA cash rate, which pushed up home loan interest rates and increased the stress-test hurdle lenders apply to your application.
Q: Does a bigger deposit actually increase how much I can borrow?
Yes, in two ways. A lower LVR can qualify you for a better interest rate, which reduces monthly repayments and lets the bank lend more. It can also help you avoid Lenders Mortgage Insurance if your LVR is 80% or below, removing a significant upfront cost from the equation.
Q: Can different lenders offer me significantly different borrowing amounts?
Yes. Lenders use different buffer rates and living expense benchmarks. A lender using a 2% buffer instead of 3% can approve a meaningfully larger loan. A broker who knows the lending market can match you to the lender most likely to give you the best borrowing outcome.