The home buyer's guide: How to boost your borrowing capacity by earning more money

Wage growth is stagnant, so if you plan on buying your first home, upsizing or purchasing an investment property, it’s time to take things into your own hands and increase your income.

A higher income accelerates saving for a deposit, which is the biggest barrier for most first-home buyers. It also increases borrowing capacity, allowing buyers to purchase more valuable properties.

For home owners, more income allows equity to build up faster, making it easier to take the next steps in the property journey, such as renovating or upgrading.

The simplest way to grow your income is to get paid more at work by getting a raise or promotion, although that’s easier said than done.

Depending on your industry and skillset, changing jobs, working additional hours, taking on additional contract work or supplementing your wages with business income may be options.

However, altering your career path to buy a home can have unexpected consequences when applying for a loan, as banks don’t view all income equally.

Why grow your income?

Income is critical because lenders want to ensure borrowers can meet minimum repayments.

“Income drives everything,” says mortgage broker and Wealthful founder Chris Bates. “The banks lend based on income. Generally six times your salary is where you start maxing out [your borrowing capacity], and that’s if you’re on minimum living expenses.”

Increasing income has a greater effect than reducing living expenses, according to Property Planning Australia managing director David Johnston.

“The amount you can grow your income by is unlimited, whereas the amount you can reduce your living expenses by is not,” he said.

“Even if you can get your living expenses really low, the banks still have a baseline method that they will not go below, which is the old Household Expenditure Measure (HEM).”

Should you change jobs?

Getting paid more in your current job is most effective way to increase your income with minimal upheaval.

Many people don’t ask for raises in their current role, according to Blue Sky Career Consulting managing director Julie Knox, which she says is a missed opportunity.

“If you’ve been stuck on the same salary for more than a couple of years, something’s not right,” she said.

“If you’ve come to the end of a financial year or a project, put the feelers out to the boss. You’ve got to have game plan going in where you’ve got evidence to back up why they should give you that extra money.”

A raise isn’t the only other way to grow income, according to Knox. “Maximise your network to look for internal opportunities, whether it’s the next step up or a different team.”

Most lenders won’t be concerned about applicants recently changing jobs if the new role is within the same field or industry, according to Foster Ramsay Finance principal Chris Foster-Ramsay.

“It doesn’t come into the mix as much as it used to,” he said. “Some lenders are getting their knickers in a knot in terms of changing jobs, others are completely OK with it, provided that it’s the same career line, better money and a recognised company.”

Bates said borrowers should always think about their future financial situation, especially when making major changes.

“You’ve got to be really careful about not only gearing up on a higher income, but about earning that income into the future,” he said. “There’s no point taking on a lot of debt and doing a job you don’t like.”

Are side hustles worth it?

House hunters temporarily taking on more work, or a “side hustle”, before buying may find the extra income doesn’t have the desired effect.

“If it’s a second job, they’re fine with it,” said Bates. “If it’s casual though, they’re going to want to see a good history. You need a good six months – they want to see that you can actually manage two jobs.”

Those supplementing wages with business income will need a longer track record to prove it’s sustainable. “If it’s a business, you’re going to need a couple of years,” Bates said.

The benefits of a side hustle may be limited to growing savings, according to Foster-Ramsay, because banks generally won’t count informal or sporadic income when assessing applications. “It’s hard to get a side hustle across the line,” he said.