Understanding mortgage borrowing limits

Mortgage borrowing limits are different for different lenders and for different customers or borrowers as they’re based on personal financial factors. For example, an individual with a higher disposable income will likely have a higher borrowing limit. Here are some of the parameters used by lenders to decide your borrowing limit:

Income and expenditure

A lender will look at the income you have coming in and all of your expenses to see how much disposable income you have left to cover repayments. Having a regular income stream will assure the bank that you can make the repayments on time. So if you have a decent income and lower expenses, you could have a higher borrowing limit than a person with a higher income but more expenses and liabilities.

Credit history and score

Your credit history is a summary of your borrowing and repayment history, and your credit score is a single number that represents this also. Your credit card spending, payments and limits will affect both your credit history and score. If you’re consistent with your repayments and have fewer loans to your name, lenders will take that into account when calculating your mortgage borrowing limits. However, any red mark on your credit history, such as a failure to repay, could make lenders wary about lending to you.

The property value and property’s purpose

During the home loan application process, lenders will likely conduct a property valuation. This amount will impact the mortgage borrowing limit set by the lender. They may be more inclined to set a higher limit if they see the property as a positive investment. The purpose you’re buying the property for will also matter. If the mortgage is to buy an investment property, banks are often more flexible regarding your borrowing limits. This is because the lenders also factor in the rental income you’ll receive from the property. 

You should also remember that mortgage borrowing limits are different for different lenders. This means comparing your options with multiple lenders to see how you can maximise your borrowing capability. However, be careful not to apply for multiple mortgages, as this could negatively impact your home loan application chances.

You can get an idea of how much a lender will allow you to borrow with our borrowing calculator.

Apart from factors like your income, expenses and credit history, your mortgage borrowing limit will be impacted by your overall credit exposure limit. 

Exposure refers to the money the bank stands to lose if you fail to repay your debts. Every debt you take increases your overall exposure and the risk you pose to all lenders. To reduce their risk, lenders often set a credit exposure limit, which is the maximum amount of money they’ll allow you to borrow and includes all credit you have from all sources. This will include any active personal or car loans you have and even your credit card limits. 

Like mortgage borrowing limits, exposure limits are calculated based on your income, expenses and credit history. A lender will look at the credit products you already have and how much income you have coming in to judge your current risk of default. They’ll then calculate an exposure limit which takes into account how much credit exposure you already have. So, if you approach a lender who has set an exposure limit of $1 million and you already have $500,000 outstanding on another loan, you’ll only be allowed to borrow a maximum of $500,000. However, there’s no guarantee the bank will lend you the full $500,000. Depending on your income, expenses and liabilities, the lender may come to the conclusion that you don’t have enough disposable income to service a $500,000 loan, and they might approve you for a smaller amount.

It’s worth noting that lenders don’t calculate exposure separately when you take out a joint loan with someone. For example, if you’ve taken out a $1 million home loan with your spouse, and you want to take out another loan with your father to purchase an investment property. In this case, the entire amount of $1 million will be used to calculate your exposure limit even if you and your spouse own the home together. In simple words, borrowing with somebody else doesn’t help you increase your exposure limit, even though the total amount of money you can borrow for a property might increase.