Are Your Debts Costing You Your Next Property?

When you first think of your dream home (or really any home), what often crosses your mind is excitement and prosperity.

Not only is it a goal and a sign of success, but it’s an enormous milestone, and a whole life’s savings can work towards this huge achievement.

What usually doesn’t come to mind is how your credit card debt might have the potential to affect your borrowing capacity.

The statistics

According to a survey by, the average Australian has a credit card balance sitting at $3,114 and a car loan costing $16,320 on average.

Which is fine, that can be paid off over time.  piggy bank save mortgage house property gold loan deposit

But what if you’re thinking of moving soon, and you need a bit of help with it?

Unfortunately, the bank won’t be on your side.

The Reserve Bank of Australia Credit and Charge Card Statistics show that if you have an average credit card debt of $3,114, your borrowing power will be reduced by $12,000, which is over three times more than the debt itself.

If you have an average personal loan of $12,643, your borrowing capacity will be lessened by $41,000, again, over three times more.

If you total up the average Australian’s personal loan ($12,643), car loan ($16,320) and credit card debt ($3,114), Australians are looking at being denied over $99,000.

Generation makes a difference

According to finder, on average Gen Y has a total debt of $29,191, reducing their borrowing power by $97,000.

Gen X sits with debt at $36,82 on average, affecting their capacity by $121,000, and Baby Boomers have the highest amount of debt on average ($41,472), reducing their borrowing by $129,000.

Statistically, Baby Boomers are lumbered with the most about of credit card, personal loans, and car loan debt out of all of the generations.

What can you do?

With Australia’s average house price sitting at $612,000, even the slightest reduction in borrowing power could severely detriment your ability to purchase a property that you would feel comfortable in. 

Debts are just as important as deposits, income and savings when it comes to getting a mortgage.

If a bank sees that you’re already owing, you’re going to be owing a lot more if you intend to buy a house on top of that.

Before applying for a loan, try to make the best attempt possible to eliminate all of your outstanding debts. 

If you can get rid of your credit card debt before applying for a loan, you’re going to significantly help yourself out in the long run.

Ultimately, your ability to show that you have ongoing savings is vital to lenders.

Redirecting part of your salary into a high interest savings account could potentially help your home loan application in the long run.

Also, try avoid discussions with potential lenders until you have as little financial baggage left over as possible. house money loan

The less there is, the more likely it is that you’ll be able to purchase the home you want.

If you think your credit card is racking up too much debt, change providers.

This may seem inconvenient, but in the long run your pocket will thank you.

This could potentially help you to avoid even bigger debts, as well as maximising your lending capacity due to higher interest rates on your accounts, or potentially lower repayment rates.

If you’re not sure where to go, try checking out a credit card comparison site.

What’s really important for you to understand is that you’re the one in charge of your own financial destiny.

So if you don’t feel like things are working out the way you want them to, you’re the one that needs to make a change.

If you’re aiming towards buying a house or a property but you have lots of debt, your lending capacity will be negatively implicated.

So try to make a few positive changes towards knocking off your debt or lowering your spending as much as possible before you apply for a loan.

Your wallet will thank you for it


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Michael Yardney


Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit

'Are Your Debts Costing You Your Next Property?' have 2 comments


    May 1, 2016 john

    I believe the limit on the credit card is seen as a debt regardless of the balance.


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