It’s a sure bet that any applicant who gets turned down for a mortgage loan on the basis of insufficient borrowing capacity will want to know what their maximum borrowing capacity is and how they can increase it.
You can embrace various strategies to increase your maximum capacity to buy a home or investment property. These strategies generally involve minimising outgoings while increasing your net income. Do away with debt and eradicate expenses
A key strategy is to reduce and, when possible, eliminate personal debt, including credit and store card debt, personal loans and hire purchases. This will result in your paying less interest, which in turn increases borrowing capacity. It also demonstrates to a lender your ability to control your finances and therefore meet your loan repayments.
If you can’t immediately pay off all your card debt, you need to try to reduce the maximum limits and consolidate the debt onto one card. Cards can attract annual interest rates of up to 30 per cent. The upshot of this is that even a manageable card debt can significantly reduce borrowing capacity in the eyes of a lender.
Reducing or eliminating any unnecessary expenses is another way to minimise outgoings. Any savings on groceries, alcohol, fuel and utility bills, clothing and entertainment can collectively go a long way towards growing your borrowing limit. Increase income
Increasing your net income at the same time as you minimise outgoings will also help. It doesn’t have to be by means of a promotion or pay increase at work, although this would be ideal. Other ways could be to take on a second job, take in a paying flatmate or rent out a spare room in your house.
Having more income would also make it easier to save for a larger deposit, which will boost your borrowing limit by giving you more equity to offer when applying for a loan. A larger deposit will also impress a lender with your ability to save and potentially to meet loan repayments. Tackle taxation
Reducing taxation is another strategy to increase net income and boost the borrowing limit. If you are not already doing so, you should employ an accountant to reduce tax paid on your personal and investment income.
If you’re serious about upping your buying potential, making a few key financial changes can get you closer to your home-buying goal.