Over the past few years, Australians have seen interest rates climb — and for anyone planning to buy property, that shift has a direct impact on how much they can borrow. Understanding how interest rate rises affect borrowing power is key to setting realistic expectations and making informed financial decisions.
What Is Borrowing Power?
Your borrowing power is the maximum amount a lender is willing to let you borrow for a home loan. It’s calculated using factors like your income, expenses, debts, and the current interest rate.
When interest rates rise, the cost of borrowing increases. That means your monthly repayments go up, and lenders adjust your borrowing capacity to make sure you can still comfortably afford the loan.
How Higher Interest Rates Reduce Borrowing Power
Here’s the simple version:
When rates go up, you can borrow less — even if your income stays the same.
For example, if interest rates rise by 1%, your borrowing power could drop by around 8–10%, depending on the lender and your financial situation.
This is because banks use a serviceability buffer — they test whether you could still afford the loan if rates were a few percentage points higher than they are today. As rates climb, that buffer increases, reducing the total amount you can borrow.
Example: Before and After a Rate Rise
Let’s say you earn $100,000 a year with minimal debt.
At a 5% interest rate, you might be able to borrow around $700,000.
If rates rise to 6%, that figure could drop to around $630,000.
That’s a $70,000 difference — just from one percentage point.
What You Can Do to Maintain or Improve Your Borrowing Power
While you can’t control interest rates, there are smart ways to strengthen your position:
✅ Reduce existing debts – Pay down credit cards or personal loans to free up borrowing capacity.
✅ Cut unnecessary expenses – The lower your monthly outgoings, the more you can borrow.
✅ Improve your credit score – A clean credit history gives you access to more competitive rates.
✅ Consider joint applications – Combining incomes can sometimes boost borrowing limits.
✅ Get professional advice early – A broker can help you find lenders who are more flexible with serviceability criteria.
Why Talking to a Mortgage Broker Matters
Interest rates and lending criteria can change frequently, and each lender has its own rules for assessing borrowing power. A Gardian Finance broker can compare multiple options, explain how rate changes affect your eligibility, and guide you toward the best strategy for your situation.
Whether you’re a first-home buyer, upgrader, or investor, the right guidance can make all the difference — especially in a shifting rate environment.
Stay Ahead of Rate Changes with Gardian Finance
Understanding how interest rates impact your borrowing power is the first step. The next is knowing how to adapt.
Talk to our experienced team today — we’ll help you plan smart, stay confident, and keep your property goals on track.
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(07) 4953 2799đź’»
www.gardian.com.auđź“Ť
73 Wood St, Mackay
