Why Every Bank Gives You a Different Answer | FUNdamental Fridays

How much can you really borrow?

In this Friday Fundamentals episode, Ben Kingsley sits down with mortgage broker Luke Oxenham to unpack one of the most common questions property buyers ask:

"How much can I borrow?"

The answer isn't always straightforward.

Luke explains how lenders assess income, expenses, HELP debt, credit cards, business income, car loans and more, plus why different banks can produce dramatically different borrowing outcomes for the exact same borrower.

They also discuss why borrowing capacity shouldn't be confused with borrowing comfort, and why the largest loan available may not always be the right one for your goals.

You'll learn:

✅ How lenders assess your income
✅ What HEM (Household Expenditure Measure) means
✅ Why credit cards can impact borrowing power
✅ How HELP debt is assessed differently today
✅ Why self-employed borrowers receive different outcomes
✅ The difference between lender tiers
✅ Why borrowing capacity is only a starting point

Because the real question isn't always how much can I borrow?

Sometimes it's how much should I borrow?

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⏱️ Timestamps

00:17 Welcome to Friday Fundamentals
00:22 The borrowing power question everyone asks
01:13 How lenders assess income
01:30 What is HEM?
02:06 The 3% serviceability buffer explained
02:27 Why lenders calculate income differently
03:15 First-tier, second-tier and third-tier lenders
04:08 How self-employed income is assessed
05:35 Credit cards and borrowing capacity
06:41 How HELP debt affects borrowing power
08:10 New lender approaches to HELP debt
09:02 Car loans vs novated leases
10:09 Online borrowing calculators explained
10:46 Using Moorr to estimate borrowing power
11:19 When to speak to a mortgage broker
12:44 Just because you can borrow more...
13:08 Updated $3,000 Per Week case studies

#PropertyInvesting #BorrowingPower #MortgageBroker #PropertyFinance #HomeLoans #HELPDebt #MoneyManagement #PropertyInvestor #FinancialFreedom #ThePropertyCouch #FUNdamentalFridays

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Transcript

SPEAKER_00 0:17

My name is Ben. This is Luke. Hey everybody. And uh today

The borrowing power question everyone asks

SPEAKER_00 0:22

we're talking boring power. Uh we got our resident mortgage broking expert here to talk all things borrowing. All things numbers. All things numbers. And we are going to try to give people a little bit of an insight here or there, maybe certain things to look out for. We're going to try and give you some tips, tricks, who knows? We'll see what we can land on.

SPEAKER_01 0:40

If you want to be a mortgage broker yourself, we can give you a crash course on that. There you go. We'll just do a whole education series. Just sign you up. Sounds like a podcast. That's it.

SPEAKER_00 0:47

Hey um uh Luke, talk to me. Where are we starting? How do we go borrowing power? What do we need to look at?

SPEAKER_01 0:52

So I think the biggest question that everyone wants to understand is how much can I borrow? Yep. Uh or what's the biggest loan size that I can look after, right? So I think the key thing is we think about what lenders do when they look at what our position looks like, right? So they are looking at our income, they take 100% of our normal base income,

How lenders assess income

SPEAKER_01 1:13

they'll take 80% of all the extra fund income, like overtime and all that sort of fun stuff as well. They'll work out what our expenses are. They will have what they think is a minimum thing, they call it hem or household expenditure measures. Essentially that's and they work that out on a whole heap of different things, and it's different for every lender.

What is HEM?

SPEAKER_01 1:30

Um, but that's essentially working out what the minimum expenses for a household with as many people in it as we have for this application, would normally spend it, right?

SPEAKER_02 1:39

Okay.

SPEAKER_01 1:39

So the bank will take the higher of the two, either the hem figure or whatever you actually spent.

SPEAKER_02 1:44

Okay.

SPEAKER_01 1:44

If you're anything like my household, it you'll probably be taking what you actually spent, because that'll be the higher figure. When they work that out, that leaves us with a difference, right? Hopefully. That difference they use to work out whether we can fit a repayment.

SPEAKER_02 1:56

Yep.

SPEAKER_01 1:56

Okay. So they look at the loan, get the interest rate, add three percent, yep, work out the repayments based on that, and then they see if that repayment can fit in that surplus.

The 3% serviceability buffer explained

SPEAKER_01 2:06

Pretty clear. There you go.

SPEAKER_00 2:08

So just so I can come back to this, right? So you taught you just said there base salary, we're taking a hundred percent and extra funds salary. So we're talking overtimes, commissions, things like allowances bonuses, allowances, we're taking 80%. Now, is that all lenders are? Okay, so talk to me now.

Why lenders calculate income differently

SPEAKER_01 2:27

Cool. So just like how every single lender has a different interest rate, yeah, they've all got different ways they're gonna look at that income, right? So a big part of what I do is understanding what someone's position is, yep, understanding what it is they want to do, and then finding a lender that's gonna work with us as opposed to one that's gonna be really, really difficult.

SPEAKER_00 2:45

Okay, so shock horaluk, you're telling me I've got two different lenders, I'm gonna get two different borrowing powers. Sometimes, yeah. You said they've only had a good mortgage broker in the room, okay? Something like that. Um it could be people watching if we're gonna train them, right? There you go.

SPEAKER_01 2:57

That's gotta keep an eye out for that.

SPEAKER_00 2:59

And uh so talk to me. I I know yeah, a lot of clients ask me all the time, what what's this first tier, second tier, third tier? What's that mean in terms of lenders?

SPEAKER_01 3:07

Good question. So first tier lenders are essentially your major lenders. Some might also say Macquarie's one of those first tier, it's the big five now.

SPEAKER_02 3:14

Yep.

First-tier, second-tier and third-tier lenders

SPEAKER_01 3:15

First tiers are probably your the major lenders, they'll add three percent on the existing straight C B A, C B A, A and Z, yep, yep. In some cases Macquarie. Yep. And then we've got our second tiers, which are not the big ones, so probably like your Bank Wests, Bank of Melbourne, St. George.

SPEAKER_02 3:31

Yep.

SPEAKER_01 3:31

Um, and then you've got your third tiers, which are probably the lenders that you would be looking towards if say your position didn't quite fit the side box that the bigger lenders wanted. So what's an example? Or if we want to say stretch our borrowing capacity. Um so those lenders would be lenders like say First Mac, Pepper, aggregator ones like say like AFG or Connect DF or some of those guys. You know, every lender will have something that they're good at or something that they specifically want to sort of focus on, right? So depending on what it is that we want to do or what our plan is, there might be a case for why some lenders might naturally start being looking like a stronger pick than say

How self-employed income is assessed

SPEAKER_01 4:08

others.

SPEAKER_00 4:08

And so when you say you your income might fall outside the box, are we talking sole traders or contractors or businesses?

SPEAKER_01 4:16

For example, if say sole trading is uh or being self-employed is a good one because a whole heap of lenders have a whole heap of different ways they'll look at it. So some of them will take whatever you did in the last financial year, some of them will take an average of the last two, some of them will start doing something weird where they'll take 120% of the previous year as long as that's like a worse year. Like but depending on what's happened in your business over those last two years, that could be three very different answers, right? For in terms of what your actual income was for that the lender's looking at. So sometimes uh ha understanding what's happened in terms of what your income position is can guide us a little bit in terms of okay, well, maybe we'll pick this lender because they'll look at our income this way, as opposed to let's, you know, just keep trying to go to CBA for every single thing we want to do, regardless, right?

SPEAKER_00 5:02

So and so if I'm a let's say a sole trader or a business, is the bank gonna look at my gross income that I'm producing as a company, or are they gonna look at the net income after expenses?

SPEAKER_01 5:12

So at most lenders will look at net profit before tax. Yep. Okay, and then there'll be a few things they can add back, like wages that you pay yourself, depreciation, um, any voluntary sort of super that you pay through the business on there as well. There can be a whole heap of things that get added back and taken away from there as well.

SPEAKER_00 5:29

So all I'm hearing is every lender's gonna look at my income differently, depending on all right, yeah, hence why I need a

Credit cards and borrowing capacity

SPEAKER_00 5:35

broker. Uh so talk to me about other debts. What uh what about what how are all the lenders gonna do?

SPEAKER_01 5:39

I think the big one that I get asked all the time is about credit cards. Okay. Because everyone wants to know whether they should close all their credit cards before they go ahead and see the line.

SPEAKER_00 5:46

I have done that before.

SPEAKER_01 5:47

Yeah, as what I like to say, it depends. All right. So credit cards are a weird one, right? Because normally you would use them for your expenses every month, and then you hopefully clear your credit card, or you do what I do and it racks up and then you get scared about it, and you've got to pay the whole thing down, right? Um, but essentially there's not actually like a physical repayment like it is with a loan. Yes. Okay. Um, that's not how they treat in the calculator. And there's a lot of stuff when it comes to banks and how they work at borrowing capacity that's not really based in real life, right? So you'll sometimes you'll have your normal, your, your real life position and what's happening, and then you'll have what the banks are doing or what they're assessing it up with. So with credit cards, essentially what they do is they kind of act like it has a repayment. So it's normally about 3.8% of whatever the limit is. And then they'll work out, they'll basically take that out of your surplus per month, which obviously, if we're taking out a surplus, means that we've got less cash to then put towards whatever

How HELP debt affects borrowing power

SPEAKER_01 6:41

else we want to do.

SPEAKER_00 6:41

Yeah. Talk to me about hex, because I I get a lot of questions around hex. Does it make a difference if my hex is 10,000, 50,000, 100,000, or 200,000?

SPEAKER_01 6:50

Does that make a difference? It does now. Okay. So it never used to. They used to just take whatever the percentage was. I think I believe it was about 9.8. Don't quote me on that. Okay. Um, but they'd basically they'd basically just take it out. The similar to what it would show up on your payslip, right? Right. So whatever you see on your payslip that says it's been deducted for help, that's coming out of what your capacity is.

SPEAKER_00 7:09

Previously speaking, hex was taken out at a relative to whatever salary you're earning.

SPEAKER_01 7:19

Same with tax brackets and stuff as well as well. Um, but for when it comes to things like help debt, you could sometimes end up in a position where, say, you know when you do your return, and then this is a bad time because we're in August. But let's say it's May and we've got $3,000 owing on our help debt, and we know when we do our tax next year it's gonna get paid and closed. But then you've got a lender telling you that they're still deducting $500 a month or whatever it is for your help repayment. And then they'll either want you to pay it and clear it, or they'll want to include it in your position, right? Doesn't make a lot of sense. So what we've seen, particularly with interest rates being quite high, is lenders are kinda uh changing what they're doing in the background a little bit for borrowing capacity. So they can't touch Abra's 3% interest rate or 3% buffer or whatever buffer they use. But what they can change is some of the metrics for how they work out the things in

New lender approaches to HELP debt

SPEAKER_01 8:10

the background. So one of the big ones that they've done that to is help debt.

SPEAKER_02 8:13

Okay.

SPEAKER_01 8:14

So some lenders will change how they assess your position depending on how long you've got left to pay your help debt.

SPEAKER_00 8:20

Interesting. Okay. So then so talk to me about that.

SPEAKER_01 8:23

So some of them might, for example, just ignore the help debt if it's gonna be paid off in a certain amount of time. I know CBA in particular, they'll do something weird. If there's like less than five years owing, they'll kind of do a like a 1% assessment on your the new loan that's in there as well. So that's a bit over the top, but that's okay. But essentially there can be a few different ways that depending on how long you've got left on your help debt and how much is owing, that can change what your borrowing capacity looks like depending on the lender too.

SPEAKER_00 8:48

I'd say well, Luke, we're all in and something today. That's what I'll give you. I've done this a long time. I didn't know they'd change the help debt restrictions. It's been a long time since I went to get lending, so that makes sense, but that's interesting. There you go. Hopefully you're learning something. Uh and so talk to me about like what about like car loans, things like that, nobody

Car loans vs novated leases

SPEAKER_00 9:02

lease. Are they treated is a car loan that's taken out post-tax versus a no-bated lease? Are they treated the same or different?

SPEAKER_01 9:08

Different. Okay. Which is, I think that's going to be the common theme for this episode, right? Yeah, it is. I'm just trying to give some more examples. Yeah. So car leases, they either you've either got pre-tax or post-tax. Yep. Pre-tax, like the name suggests, comes out before tax. Um, that the way that works out, they just deduct that off your gross income and then they'll put the net or the reduced figure in the servicing calculator, work it out from there. Um, post-tax, they essentially treat it like a repayment, so they slot that in after they've worked out your gross income, so it comes out of like a net surplus at the end of it.

SPEAKER_00 9:38

So look, what I'm hearing is we've got a whole bunch of different options and a whole bunch of different lenders, and they're all going to treat everyone's situation differently. Correct. Okay. So if I'm sitting here even more confused than when I started this episode, because I'm just listening, hopefully not, but hey, let's just say, for example, that happened. What could I do today to maybe just give me an insight? I don't I'm not ready to speak to a bank, I'm not ready to speak to a mortgage broker just yet. I'm just a bit nervous about that. What what should I do?

SPEAKER_01 10:07

Yeah, so I mean that's the hard part,

Online borrowing calculators explained

SPEAKER_01 10:09

right? Because most people go, okay, well, I'm not too sure, like I don't need to have a meeting. I don't really want to go to the bank. I don't know if I want to have that chat with the mortgage broker just yet. Yep. So first thing they do is they jump onto a bank's website and they just key in the some of the figures into that borrowing power and it says, great, you can borrow however much. Obviously, that does not include all these things that we just spoke about just then, right? So, I mean, they might ask certain questions, but it's probably not going to be spot on. But that can be a starting point. Yep. Other one is if we go to the more portal or if you I'm using more, there is a section in there where if you fill out everything, it can give you an indicative figure.

Using Moorr to estimate borrowing power

SPEAKER_00 10:46

Talk to me, Luke.

SPEAKER_01 10:46

Now keep in mind. Go at me again with that.

SPEAKER_00 10:50

Go at me again with that. Talk to me here. So hold on, what can I do? I go where? So talk to me, Luke. So you go to more. I go to more. That's right. Yeah, M double O W. All roads lead to more. All roads lead to more. Okay. I'm putting in income.

SPEAKER_01 11:03

So if you go to more, if you're anything like me, it will ask you 400 questions, but that's okay, because it's going to give us an accurate map of what our cash flows look like, right? Okay, yep. Once we know that, and that's the first step, too. You want to you want to know where you said at the start of this.

SPEAKER_00 11:17

I want to know how much I've got left over at the end of the month.

When to speak to a mortgage broker

SPEAKER_00 11:19

Yeah, exactly. So that's point one.

SPEAKER_01 11:20

Okay, yep. Yep. So once we fill that out, we can go on to more. That should tell us or give us a starting point, right? The next step from there, if that is a figure that seems like something that we want to pursue, would be talking to an investment savvy mortgage broker like myself. Um, I don't know if Ben's gonna let me put my phone number at the bottom, but that's okay. I reckon we'll chuck it in there. I mean, modesty is careful. I've got a weird last name. People can find it.

SPEAKER_00 11:43

All right, so that hey, folks, what have I heard, right? My income's gonna be treated differently with every lender. My liabilities, they're gonna be different. Every lender. Um, debt to income ratios, totally different. If I've got business income, totally different. So options galore, right? So step one, we're finding out what you've got in surplus at the end of the month, and we're gonna use the more platform to do that. So we're gonna go in there, we're gonna put our income, our assets, our liabilities, our expenses, and we're gonna find out what we've got the end of every month. Then beyond that, there's a little toggle, I think, on the left-hand side that uh has a lending calculator in there as well that they could click on and potentially give them some preliminary insight.

SPEAKER_01 12:22

So it'll give us give us a ballpark starting point, which is good. Yeah, um, I would still strongly recommend having a conversation with the broker though, because again, like we covered off, there are 50,000 different things in there, and everyone's position is different, right? So I think having someone who knows how the different banks work and having that conversation with them to understand what your goals are and where you want to go. Because that's the big focus,

Just because you can borrow more...

SPEAKER_01 12:44

right? Like it's all well and good to say, okay, well, how much can I borrow? And you're like, okay, but what do you want to do? So what are you telling me, Luke? Maybe I can borrow a million, but I shouldn't.

SPEAKER_00 12:52

Well, sometimes, yeah.

SPEAKER_01 12:53

Yeah, like because at the end of the day, you're the one that's got to make the repayment, right?

SPEAKER_00 12:56

So if only there was a good planner in the room as well, hey. But we'll get to that another day.

SPEAKER_01 13:00

Uh I think Polly's working from home today.

SPEAKER_00 13:02

Yeah, wow, that's the only good one, especially on this uh Friday fundamental geez. I'm getting smacked left, right, and center,

Updated $3,000 Per Week case studies

SPEAKER_00 13:08

people. All right, so Luke, before we wrap up on our Friday and we hit the pub for an afternoon quiet one, we're gonna do a quick shout out, okay? And that is about our latest uh case study update. Now, just so everyone's clear, Polly did all the work, okay? So if there's anything wrong, it's her fault. Uh no, there's nothing wrong. Polly doesn't miss it. Polly doesn't make she doesn't miss. Polly's always right. That's the saying at this business. Polly is always right. P-A-R. Now, there's uh $3,000 a week, which I know all our listeners have read because incredibly popular book. There is a whole bunch of case studies in that book. We've got the first home buyer, we've got the rent vestor, we've got the young family, we've got the family with older children, we've got the downsizer, we've got everything. There's even a bonus in that case study, which, hey, I don't want to give you everything. It's live vesting, but hey, it's in there. Now, now this is already out. Okay, just so we're clear, right? You're listening to this episode, these case studies are out. We've got www.propertycouch.com.a forward slash case studies. Now, hey, here's a bonus if ever I've heard one. Look, you ever heard the word free? F-R-Dou-E. If you leave us a review, the video series of case studies, they are free. Won't cost you a dime other than your time when you sit down and watch them, but you'll enjoy every minute of that uh because we put in all the work we possibly could. So that's our shout out. Please uh download those, have a listen. Thanks so much for joining, Luke. Thank you for being here. Absolute pleasure.

SPEAKER_01 14:36

If you're on the couch website, jump on there and check out. I've got a great photo from 2019. There you go. Seven years now. It's uh great.

SPEAKER_00 14:45

I'll be right back. There's no pigment here. Absolutely enough. Hey yeah, we'll see you next time. Thanks so much. See you later. We'll be back. Are you ready?