In today’s high interest rate environment, many Australians are finding their borrowing power has dropped significantly. What used to be enough to secure a dream home or investment is now falling short.
But there’s a new approach that’s changing the game.
By starting with a non-bank lender and using a refinance policy backed by a one percent buffer, buyers can unlock up to 20% more borrowing capacity. Whether you’re a first-home buyer, upgrader, or investor, this method can help you get further without needing complex financial setups or creative accounting.
This guide breaks down how the strategy works, step-by-step — and what you should be aware of before using it.
Why Borrowing Power Has Dropped
Interest Rate Hikes Have Cut Capacity
Over the past 18 months, borrowing power has taken a major hit across Australia. With interest rates rising, monthly repayment requirements have gone up by almost 50%. This means many buyers can now borrow 30–40% less than they could before.
One of the main reasons is how banks assess your ability to repay. Most lenders now use an assessment rate close to 9%, which includes the actual interest rate plus a buffer. This higher rate reduces the total loan amount you can qualify for, even if your income hasn’t changed.
How Banks Calculate What You Can Borrow
Lenders run a basic calculation: your total income minus your monthly expenses. The amount left over is your net surplus — the money the bank assumes you have available to make loan repayments.
That surplus is then used to estimate how large of a mortgage you can service. If rates are high, the same surplus supports a smaller loan. That’s why borrowing capacity has dropped so much — even households with strong incomes are feeling the impact.
What’s the One Percent Buffer Strategy?
Step 1 – Start with a Non-Bank Lender
The first step is to get your loan through a non-bank lender. These lenders don’t follow the same strict assessment rules as the big banks. As a result, they often offer borrowing limits that are around 20% higher.
This gives you more flexibility when buying, especially if you’ve been held back by tighter serviceability limits from traditional lenders.
Step 2 – Refinance After 12 Months
Once you’ve made 12 months of on-time repayments, you can refinance back to a mainstream bank. This is where the one percent buffer comes in.
Instead of being assessed at a 9% interest rate, you’re assessed at around 7%. That lower rate boosts your borrowing power — potentially by up to 20% — without changing your income or financial situation.
The key is to keep your repayments consistent during that first year to qualify for the refinance.
Example – How a Family Can Borrow $200K More
A $240K Income Household Gains Big
Let’s say a household earns $240,000 a year — $120,000 each. Under current conditions, most mainstream lenders would cap their borrowing power at around $1.2 million.
But if they apply with a non-bank lender first, they could secure a loan closer to $1.45 million.
That’s a $250,000 difference — simply by using a different path and planning to refinance under the one percent buffer rule after a year. For many families, that’s the difference between settling for less and securing their ideal home.
Key Requirements to Use This Strategy
Who This Is For
This approach suits buyers who need more borrowing power to meet their property goals. Whether you’re a first-home buyer trying to break into the market, an upgrader looking for more space, or an investor aiming to maximise leverage — this method could help.
What You Need to Qualify
To make this work, there are a few key things to keep in mind:
• You’ll need 12 months of on-time repayments with the non-bank lender.
• A 15–20% deposit is strongly recommended to avoid costly lender’s mortgage insurance and make refinancing easier.
• Property values must stay steady or increase — as your refinance depends on the property maintaining value.
This isn’t a shortcut, but it’s a smart way to work within the current lending environment.
What Are the Risks?
Higher Rates in Year One
Non-bank lenders usually charge more than traditional banks. You might pay between 0.5% to 1% above standard rates during the first 12 months. It’s a higher cost upfront, but it gives you access to a larger loan — which can make a real difference in a tight market.
Refinance May Depend on Property Value
When it’s time to switch to a mainstream lender, your new bank will revalue your property. If prices drop in the meantime, it might affect your ability to refinance. That’s why this strategy works best when you’re buying in areas with stable or rising prices.
Conclusion
This is a smart, legal way to boost your borrowing power without needing complicated structures or taking on risky loans. It’s already helping buyers across Australia get into the market sooner and with more confidence
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