If you're thinking about buying your first home, one of the biggest questions is, "How much can I actually borrow?"
Your borrowing power is the amount a lender is willing to let you borrow based on your financial position. It’s not a fixed number, and it can vary widely between banks, non-bank lenders, and mortgage products. Knowing how it's calculated can help you plan more effectively, make confident decisions, and avoid falling in love with a property that’s out of reach.
At Luminate, we help first-home buyers across New Zealand understand and improve their borrowing capacity so they can buy smart, not stretched. In this guide, we break down the key factors lenders look at and how you can estimate what you might qualify for.
What Is Borrowing Power?
Borrowing power is the total loan amount a bank or lender is likely to approve based on your income, expenses, debts, deposit, and overall financial profile. It sets the upper limit of what you can spend on a property and is the foundation of your home-buying budget.
Banks in New Zealand are regulated by the Reserve Bank and must apply responsible lending rules. This means they don’t just lend based on income alone. They assess your ability to repay the loan comfortably, even if interest rates rise.
The 6 Key Factors That Determine Your Borrowing Power
- Your Income
Lenders look at your gross income (before tax), including:
- Salary or wages
- Overtime or bonuses (if regular)
- Rental income (with adjustments)
- Flatmate or boarder income
- Self-employed earnings
- Government payments
If you're applying jointly with a partner, both incomes are considered. Some banks also accept part-time or casual work if it's consistent over time.
- Your Expenses
Banks apply benchmarks to estimate living expenses but also look at your actual spending habits. Key areas include:
- Rent (if you will still be paying rent after buying the property)
- Subscriptions and insurances
- Transport and petrol
- Groceries and utilities
- School or childcare fees
High spending can reduce your borrowing power, even if your income is strong.
- Your Debts
Any existing liabilities can significantly reduce how much you can borrow. These include:
- Credit card limits (not just what you owe, but the total limit)
- Car loans or personal loans
- Student loan repayments
- Afterpay, Laybuy or other Buy Now Pay Later services
- Store finance or hire purchases
Even a credit card with a zero balance but a $10,000 limit may reduce your borrowing capacity by over $300 per month.
- Your Deposit
Your deposit size affects both how much you can borrow and which lenders are available to you. With a 20 percent deposit, most major banks will consider your application. With less than 20 percent, your options may be limited to specific banks, the Kāinga Ora First Home Loan scheme, or non-bank lenders.
For example, if you have $100,000 saved and want to buy a $600,000 property, that’s a deposit of just over 16 percent. A lender would then need to be comfortable funding the remaining 84 percent.
- Loan Term and Structure
Most home loans in New Zealand are structured over 25 to 30 years. A longer loan term reduces your monthly repayments, which can increase your borrowing power. Shorter terms result in higher repayments, which may reduce the loan amount you qualify for.
Lenders also look at whether you’re applying for a principal and interest loan or an interest-only option. The latter is generally reserved for investors or short-term scenarios.
- Interest Rate Sensitivity (Stress Testing)
Lenders don’t assess your affordability at the current market rate. They apply a "stress-tested" rate, typically 2.5 to 3 percent higher than the actual interest rate, to ensure you could still afford repayments if rates rise in the future.
For example, if the current rate is 6 percent, your application may be assessed at 8.5 or 9 percent. This reduces the risk for both you and the lender but also limits the maximum loan amount.
A Quick Estimate: What Could You Borrow?
Here’s a rough guide for two common scenarios:
Scenario 1: Single Buyer
- Annual income: $85,000
- No major debts
- $80,000 deposit (from savings and KiwiSaver)
- Modest spending habits
Estimated borrowing power: $450,000 to $500,000
Likely purchase range: $530,000 to $580,000
Scenario 2: Couple
- Combined income: $150,000
- One credit card ($10,000 limit) and car loan ($7,000 remaining)
- $100,000 deposit
- Shared expenses and one child
Estimated borrowing power: $650,000 to $750,000
Likely purchase range: $750,000 to $850,000
These are ballpark figures. Your actual borrowing capacity will depend on the lender, your spending profile, and how your application is presented.
How to Increase Your Borrowing Power
If you're short of the loan amount you need, there are ways to improve your position:
- Reduce or close unused credit cards
- Pay down existing loans
- Cut back on discretionary spending
- Save a larger deposit
- Consider adding a boarder or co-borrower
- Use KiwiSaver (if eligible)
- Track spending to show strong financial conduct
A mortgage adviser can help you prioritise the changes that will have the biggest impact.
Why Work With a Mortgage Adviser?
Each lender uses a slightly different formula to assess borrowing power. Some will count flatmate income. Others might ignore it. Some will use a higher living expense buffer than others. And non-bank lenders may be more flexible on credit history or self-employed income.
At Luminate, we compare your position across multiple lenders and show you exactly what you could borrow in today’s market. We also structure your loan to suit your lifestyle, not just your borrowing limit.
Final Thoughts
Your borrowing power is the foundation of your first-home journey. Understanding how it's calculated and how you can influence it gives you control over your purchase price, loan strategy, and financial future.
Don’t rely on guesswork or online calculators that only tell half the story. Work with someone who can help you make sense of the numbers and give you a clear, personalised plan.
Want to know exactly how much you can borrow?
Book a free First-Home Strategy Session with Luminate.
We’ll assess your income, deposit, and lifestyle, and show you what lenders are likely to approve — all without obligation.
Visit www.luminate.co.nz | Email askus@luminate.co.nz | Call 0800 333 400
