Proven tips to maximise borrowing capacity after divorce

Understanding borrowing capacity when you're separating

Your borrowing capacity is the maximum amount a lender will let you borrow based on your income, living costs, existing debts, and financial commitments. After separation, that calculation shifts because your household income may have changed, you might be paying or receiving spousal or child support, and your living expenses are now independent rather than shared.

Lenders assess borrowing capacity by applying a serviceability buffer of 3.0 percentage points above the loan product rate. If you're looking at a variable rate of around 6.2 per cent, the lender tests whether you can afford repayments at 9.2 per cent. That buffer protects both you and the lender if rates rise, but it also tightens how much you can borrow right now.

Consider someone earning $95,000 annually with $800 per month in child support payments and a $450 per month car loan. The lender starts with net income after tax, adds verifiable child support, deducts the car loan commitment and living expenses based on the Household Expenditure Measure, then tests serviceability at the buffered rate. In that scenario, borrowing capacity might sit around $450,000 to $480,000, depending on the lender's assessment method and the loan structure chosen. The key point is that the final figure depends on how each element of your financial position is treated, and treatment varies between lenders.

How child support and spousal maintenance affect your application

Child support you receive can be included as income if it's court-ordered, documented in a binding financial agreement, or registered with Services Australia. Lenders typically require at least three months of payment history and evidence that payments are ongoing and reliable. Spousal maintenance follows the same principle, though lenders often apply a shorter assessment period than child support because it may be time-limited.

Child support you pay reduces your borrowing capacity because it's treated as a committed monthly expense. The lender deducts the payment from your net income before calculating serviceability. If you're paying $1,200 per month in child support, that's $14,400 per year no longer available to service a mortgage, which can reduce borrowing capacity by roughly $70,000 to $90,000 depending on the loan rate and term.

Spousal maintenance you pay is treated the same way. If your separation agreement includes a time-limited spousal payment that ends in two years, some lenders will still assess it as an ongoing commitment for the life of the loan unless you can demonstrate a formal end date. Others may take a more flexible view if the payment period is short and well-documented. This is one area where lender choice makes a tangible difference to the amount you can borrow.

What happens to joint debts and how lenders treat them

Joint debts remain joint until they're formally refinanced or closed. If your name is on a joint credit card with a $15,000 limit, lenders assume you're liable for the full limit even if your former partner is the only one using it. That liability reduces your borrowing capacity whether or not any balance is owing.

The cleanest approach is to close or transfer joint accounts before applying for a new home loan. If that's not possible, lenders may accept a separation agreement or consent order showing the debt is your former partner's responsibility, but not all lenders treat that documentation the same way. Some will exclude the liability from your application, others will still factor it in at a reduced weighting, and a few will count it in full regardless of the agreement.

In a scenario where one partner is buying out the other and refinancing the existing mortgage, the outgoing partner's income is no longer part of the serviceability calculation. If the remaining partner's income alone doesn't support the existing loan balance, options include extending the loan term, adding a guarantor, or negotiating a lower settlement amount that aligns with solo borrowing capacity. Those conversations need to happen early in the separation process, not at settlement.

When your income structure changes the assessment

If you've moved from shared household income to a single income, or if you've recently started a new job or shifted to part-time work, lenders will assess stability and consistency. Most require at least three months in a new role, though six months is more common for stronger applications. If you're self-employed or working on contract, lenders typically want two full years of financials, though some will assess after one year if the income is steady and the industry is stable.

Bonus and commission income is usually averaged over two years and shaded by 20 to 50 per cent depending on the lender. Overtime is treated similarly. If those earnings make up a significant portion of your income, expect your borrowing capacity to be lower than the raw figure suggests. Centrelink payments including Family Tax Benefit and Parenting Payment can be included by some lenders, though not all, and the inclusion rate varies.

How existing property and equity influence what you can borrow

If you're keeping an investment property as part of the settlement and buying a new home to live in, the rental income from the investment is included in your borrowing capacity, but lenders typically shade it by 20 per cent to account for vacancies and maintenance. If the property is neutrally geared or negatively geared, the shortfall is treated as an ongoing expense and reduces what you can borrow for the new purchase.

The equity position in any property you retain also matters. If you're releasing equity to settle with your former partner, that withdrawal increases your loan balance and changes your loan-to-value ratio. A higher LVR may trigger Lenders Mortgage Insurance and will almost certainly reduce the amount you can borrow for a subsequent purchase because your debt position is higher.

Strategies that improve borrowing capacity without waiting years

Paying down smaller debts before applying makes an immediate difference. Clearing a $10,000 personal loan might add $50,000 to $60,000 to your borrowing capacity because the monthly commitment disappears from the serviceability calculation. Closing unused credit cards has a similar effect. A $20,000 limit you're not using can still reduce your borrowing capacity by $90,000 or more.

Adding a co-borrower or guarantor brings additional income into the equation or reduces the lender's risk, both of which can increase the amount you're approved for. A guarantor doesn't need to contribute financially but does take on liability if you default, so it's a decision that requires clear communication and legal advice. Co-borrowing with a new partner or family member changes the ownership structure and needs to be weighed against your longer-term plans.

Extending the loan term from 25 to 30 years reduces the monthly repayment, which improves serviceability and increases borrowing capacity. The trade-off is paying more interest over the life of the loan. Switching from principal and interest to interest-only repayments for an initial period has the same effect, though not all lenders offer interest-only on owner-occupied loans and it delays building equity.

Choosing a lender with a more favourable assessment method for your situation can make a material difference. Some lenders apply lower living expense benchmarks, others accept a higher percentage of child support or rental income, and a few offer policy exceptions for borrowers who fall just outside standard criteria. Working with a broker who understands how different lenders assess separated or divorced applicants means you're applying to the lender most likely to approve your situation at the highest amount, rather than testing multiple lenders and collecting declines.

When debt-to-income limits affect what lenders can approve

From February 2026, lenders can only write up to 20 per cent of their new loans to borrowers with a total debt-to-income ratio of six times or more. If your annual income is $80,000, a DTI of six times is a loan of $480,000. Anything above that falls into the restricted portion of the lender's portfolio.

This doesn't mean you can't borrow above six times your income, but it does mean the lender needs to be comfortable allocating one of their limited high-DTI approvals to your application. If your income is strong, your expenses are low, and your deposit is substantial, you're more likely to be approved under that allocation. If your application sits on the margin, the DTI limit might be the factor that brings the approved amount below what serviceability alone would allow.

You can check your own DTI ratio by dividing your total proposed debt, including the new mortgage and any remaining personal loans or car loans, by your gross annual income. If the result is below six, the DTI limit won't affect you. If it's above six, your broker should be identifying lenders who still have capacity within their allocation and who assess your income type favourably.

Call one of our team or book an appointment at a time that works for you. We'll walk through your income, commitments, and settlement terms, then show you what you can borrow and which lender structures give you the most capacity for your situation.

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