Does a novated lease affect your home loan?

A car lease can fit comfortably into your budget and still reduce what a bank will lend you for a home.

We’ve had clients sell their cars while working through their home loan options. Before deciding what to do with yours, compare keeping the lease with clearing it, including how much savings you’d have left.

One of our clients earned $120k a year and had a novated lease. We compared what they could borrow with the lease and with it paid out.

Your result will depend on your income, expenses, other debts and the lender. This shows why it’s worth checking the car early if you’re falling short of the home loan you need.

The bank looks at how much income you have available for mortgage repayments. Money going towards the car leaves less for the home loan.

A novated lease is paid through your salary package under an arrangement with your employer and the car financier. The deductions can cover finance, running costs and fees, with amounts taken before or after tax.

We need your payslip and lease breakdown to see those amounts. The advertised cost after tax savings doesn’t tell the bank everything it needs.

Banks also check whether you could afford the home loan at a higher interest rate. APRA’s mortgage assessment buffer for banks is 3% above the actual rate. This can make a car payment have a bigger effect on borrowing power than you expect.

No. One lender may use your income after the lease deductions. Another may add the deduction back to your income, then count the car repayment separately. Either way, the car still needs to be allowed for.

So if you hear that a bank “adds it back”, that doesn’t mean the lease has no effect on your borrowing power.

Macquarie is one example

Macquarie reduces the income it uses by your pre-tax lease deductions and counts any post-tax lease payment separately. For an EV lease with no post-tax deduction, it uses the lower income without adding a separate car repayment.

The lease can still reduce what you can borrow. Whether this works better for you than another lender’s approach depends on your numbers. Our Macquarie home loan review covers its other features and fees.

As your broker, we can compare suitable lenders using your payslip, lease and buying budget. We’ll look at how much you can borrow, what the loan costs and which option suits you. Our borrowing calculator can give you a starting point.

Our Westpac home loan review and ANZ home loan review explain their broader lending criteria, features and fees. We’ll check how each would assess your lease before recommending one.

What if the lease includes running costs?

Tell us which costs are covered, such as fuel, insurance or servicing, and which you pay yourself. We’ll check how the lender allows for them. Banks also use living-expense benchmarks and may ask for statements to support a lower figure.

Paying out the lease can help if the car payment is stopping you borrowing enough. But you’ll need to weigh that improvement against the savings used to clear it.

If you can already get the home loan you need, you may prefer to keep the lease and hold onto your cash. We can compare the costs before you decide.

Paying off the car leaves less for your deposit

If you use $40k of your savings to clear the lease, that’s $40k less you can put towards the house. You’ll need a larger home loan to buy the same property.

For example, say you have $260k saved for a $900k home. After allowing $35k for purchase costs and keeping $30k in savings, your deposit is $195k. Paying $40k off the car reduces it to $155k.

Use our deposit calculator with the savings you’d have left after the payout, buying costs and your cash reserve.

Does paying off the car mean you’ll pay LMI?

Not automatically. If the payout leaves you with less than a 20% deposit, lenders mortgage insurance (LMI) may apply. Some buyers qualify for a waiver or government scheme. LMI protects the lender. Our LMI guide explains the options. Our LMI calculator can estimate the premium if no waiver or scheme applies.

We’ll check whether the extra borrowing power outweighs the smaller deposit and any extra costs before you pay out the lease.

Check the cost of clearing the lease

Get an itemised payout quote from your provider. It can differ from the residual or statement balance. Check exit fees, tax adjustments and any unused running-cost funds.

You’ll still need to budget for insurance, registration, fuel or charging, servicing and repairs after the lease ends.

An eligible electric car can receive favourable fringe benefits tax treatment. This can change the deductions on your payslip and how a lender assesses the lease. A tax saving doesn’t remove the car’s effect on your home loan.

If you have a HECS or HELP debt, don’t assume a lower taxable salary means lower repayments. Reportable fringe benefits can count towards HELP repayment income. They can also affect child support and some government benefits. Check this with your tax adviser.

Plug-in hybrids generally stopped qualifying for the EV exemption from 1 April 2025, although some earlier arrangements can continue under specific conditions.

Treasury has also announced changes to EV concessions starting from 1 April 2027, with draft legislation released for consultation in September 2026. The proposed treatment depends on the car’s value and commitment date. Before signing a new lease, ask your provider or tax adviser which rules and transition arrangements apply to you.

Buying your first home? Our first home buyer eligibility calculator checks the main scheme rules and estimates a buying budget. For a Queensland purchase, use our stamp duty calculator to help allow for buying costs. These are planning estimates, not loan approval.

Tell us about other commitments too, including HELP debt, credit card limits, child support and maintenance payments. Bring any agreement for payments that start later or depend on something happening.

After home loan pre-approval, speak with us before taking out a new lease or changing the current one. A change in your commitments can affect the bank’s final decision.

Sources and examples

The client story is a borrowing-capacity comparison, not a settled loan or a guaranteed result. Macquarie is an example of one lender’s method, not a recommendation for every borrower.

The $900k purchase example is hypothetical. It assumes $260k in savings, $35k in purchase costs, $30k kept aside and a $40k lease payout. The bank’s valuation is assumed to equal the price. LMI and any borrowing to pay it are excluded. The cost allowance isn’t a stamp-duty quote; actual costs depend on the property, location, concessions and professional fees.

• Macquarie: pre-tax and post-tax deductions
• Macquarie: living expenses and benchmarks
• APRA: mortgage assessment settings, May 2026
• ATO: electric vehicles and fringe benefits tax
• Treasury: proposed EV concession changes
• Westpac: how a novated lease works
• ATO: income used for HELP repayments

Lender policies and tax rules can change. We check the current requirements before recommending a loan.