I know I can afford the repayments, why won't the bank lend to me?

Short and simple, the bank benchmarks every loan to a minimum interest rate which bumps up repayments and they also have a minimum living expenses guide to work from. 

The first hurdle that most people don't expect is the living expenses equation. I meet with plenty of people and a lot of times when we have a discussion around how much they're spending to live week to week we will go through groceries, petrol, rates, insurance etc and the number might be about $1800 a month depending on circumstances.

Lenders however work from living expenses benchmark also. Depending on whether you are single, in a relationship, how many children you have, and sometimes where you live, the bank will have a pre determined amount they believe you will need to spend as a minimum to survive. If you are under the benchmark they will bump you up. Things like childcare, private health, education and rent however are added on top of this minimum expense benchmark.

Then things like credit cards and personal loans are taken in to account. If you have a credit card with a limit, not balance, of $10,000 the lenders will use 3% of the limit, in this case $300 and use it as the monthly repayment. Personal loans are a bit different and vary from lender to lender but the amount you pay a month on these is also added to your living expenses.

At this point the lender knows your income, they have subtracted your living expenses and current liabilities (credit cards, personal loan repayments) from your income and are left with an amount you can use to repay a mortgage. Funny story with how they calculate the amount your mortgage would cost... While rates are currently sitting around the 3.70% mark for Owner occupied loans the rate the lenders are using to check you can afford repayments (the assessment rate) is usually 7.25%. The reason for this is to ensure that if rates were to increase you wouldn't go in to financial difficulty. 

Not all lenders are equal however and just because on does it one way others will do it differently. One lender has an assessment rate of 8%. It is high but the benchmark for living expenses is generally a little lower. Someone on a high income and seeking a moderate loan amount may suit this lender whereas an investor with a property portfolio would have a tough time.

On the other end of the scale I have a lender that uses the actual repayment on debts that are with other institutions and add 20% to the repayment amount (if actual repayments were $100 the assessment rate repayment is $120).

In short, if one bank says no it doesn't mean no for everyone, it just means try somewhere else. Or you could use a broker who can put you in the right loan the first time.