How Everyday Debt Can Impact Your Home Loan Approval

When people think about applying for a home loan, they usually focus on one thing: income.

How much they earn, how stable their job is, and whether their salary will cover the repayments.

But from a bank’s perspective, income is only half the picture.

The other half – and often the part that catches people out – is everyday debt.

What banks mean by “everyday debt”

Everyday debt isn’t just big loans. It includes things many people barely think about anymore, such as:

• Credit cards
• Buy Now Pay Later (Afterpay, Buy Now, Pay Later, etc.)
• Car loans
• Personal loans
• Overdrafts

Even if these debts feel small or manageable, banks still factor them heavily into your application.

The credit card trap most people don’t realise

One of the biggest surprises for borrowers is how banks assess credit card limits.

For example:

• You might have a $10,000 credit card limit
• You only owe $500
• You pay it off regularly and feel in control

From the bank’s perspective, that full $10,000 limit is still available to you. So
they assess your loan as if you could use all of it at any time – because technically, you can.

That means the limit matters more than the balance.

How debt reduces your borrowing power

As a rough guide, every $1,000 of personal debt can reduce your borrowing power by around $10,000.

So:

• $5,000 in combined limits or debt = $50,000 (approximately) less borrowing power
• $20,000 = $200,000 (approximately) less

This is why people are often shocked when the bank approves them for less than expected, even though their income looks strong on paper.

Why “small” debts add up fast

Buy Now Pay Later is a common example.

Each account might seem harmless:

• No interest
• Small repayments
• Easy to manage

But when you have multiple BNPL accounts, plus a credit card and a car loan, the bank sees:

• Ongoing monthly commitments
• Reduced cashflow
• Higher risk

Individually, they’re small. Together, they can seriously impact your approval.

The good news: this is fixable

The upside is that everyday debt is one of the easiest things to clean up before applying if you plan ahead.

That might mean:

• Reducing or closing unused credit card limits
• Consolidating debts into one cleaner structure
• Paying off smaller balances
• Tidying spending so accounts look stable and consistent

Even a few months of clean behaviour can make a real difference.

Preparation matters more than people think

A lot of declined applications aren’t because people can’t afford a home – they’re because the application wasn’t presented at the right time or in the right way.

Taking time to:

• Review your numbers
• Understand how the bank will assess you
• Tidy things up before applying

can dramatically improve the outcome.

Before you apply, talk to us first

If you’re thinking about buying a home whether that’s soon or further down the track – it’s worth having a conversation early.

A quick review of your everyday debt now can save you stress, surprises, and potentially hundreds of thousands of dollars in lost borrowing power later.

If you’d like a second set of eyes on your numbers, get in touch with the team at The
Mortgage Hub. We can help you understand how the banks will view your situation and what, if anything, needs tidying up before you apply.

You can also watch this short video from our director, Mils Muliaina, where he explains how everyday debt impacts home loan approvals and what you can do about it.

Sometimes, a few small changes today are all it takes to unlock the home you want tomorrow.