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Buying Property: How much you can afford to borrow and bid.

Kearney Group Property: How much you can afford to borrow - Savings -Borrowing Capacity
3 February 2025 Read time: 5 min

Buying property is an exciting milestone, but figuring out how much you can afford to borrow—and what that means for your maximum purchase price—can feel overwhelming. It’s important to remember that what you can afford to borrow isn’t always the same as what the bank is willing to lend, and understanding the difference is key to making a smart financial decision.

The good news? With thoughtful planning and expert financial planning, tax, and lending advice, you’ll be well-equipped to make a confident, informed decision that fits your lifestyle now and sets you up for success in the future.

Read on for expert insights and 6 key questions to ask to better understand how much you can afford to borrow, set a realistic property budget, and buy with confidence.

 

How much can you afford to borrow?

When you apply for a home loan, lenders consider two key factors when determining how much you can afford to borrow (aka borrowing capacity)—and by extension your maximum purchasing price. They’ll assess:

  • your income and expenses (i.e. your ability to repay the debt, aka serviceability)
  • how much you’ve got saved (i.e. your deposit amount)

When determining your borrowing capacity, most lenders use expenditure information provided in your application, along with estimates derived from the Household Expenditure Measure (HEM), to assess your living costs. The HEM calculates minimum living expenses based on factors such as household size, age, location, and spending habits.

Many households spend more than these estimates, so make sure you understand and accurately report your family’s actual income and expenditure in your application. By doing so, you can reduce your risk of future mortgage stress and avoid committing to repayments that will ultimately create a cash-crunch in your household.

Getting help with a budgeting and cashflow management system is a great way to ensure your repayments won’t derail your lifestyle or other financial goals and commitments.

 

Can you afford mortgage repayments – today and in the future?

Before setting your maximum purchasing price and waving that paddle around at auction, you should carefully consider expected repayments on your chosen property.

Lenders sometimes allow people to borrow more than they can comfortably service, and everyone’s tolerance for debt is different. That’s why it’s crucial to focus not just on what you’re permitted to borrow, but on whether you can realistically afford repayments and still sleep at night.

So – Can you comfortably afford repayments in the current climate? What if interest rates happen to rise by 2%? Could you manage if your employment or family circumstances change in the future? These are important questions to ask when determining how much you can actually afford to borrow.

A good financial adviser can help you with financial modelling so you can see how different scenarios may impact your goals and lifestyle. Scenario planning not only helps you avoid common pitfalls, it also reveals how different decisions can affect both the viability and timing of longer-term hopes, dreams and aspirations.

 

Do you have enough saved for the house deposit and upfront costs?

To determine how much you can afford to borrow and pay for a property, you’ll also need to consider your deposit and upfront costs. 

Having a 20% deposit is ideal, but you’ll also need to factor in other costs like legal fees, stamp duty, and financing expenses.

If you don’t have a 20% deposit saved, and need to borrow more than 80% of the property’s value, you’ll likely need to pay Lenders Mortgage Insurance (LMI). LMI kicks in to protect your lender (not you) in the event you default on your loan repayments. It’s charged as a percentage of your overall borrowings, added to your mortgage and repaid over the life of the loan.

Some professionals – like doctors, dentists, nurses, legal professionals and Chartered Accountants – may be permitted to borrow 90-95% of the property’s value before being subject to LMI.

But broadly speaking, the higher your borrowing percentage, the higher your monthly repayments – so keep this in mind when assessing affordability.

 

What other ‘hidden’ costs should be expected?

If the property you’re purchasing is intended to be your primary residence, it’s worth considering annual rates and any body corporate fees which can vary widely – based on both the region and type of property you buy.

If you’re purchasing an investment property, you’ll also need to consider land tax, as well as your after-tax rent received and interest paid. This will provide you with a truer indication of what your likely out-of-pocket costs might be at the end of each year.

As a landlord, you should also plan for how you’ll manage repayments in the event of vacancy. Many property owners aim to have at least 3 months’ worth of repayments set aside to help cover potential gaps in rental income.

 

Are you protected in an emergency?

So you’ve scrimped, saved and sacrificed to turn your property dream into a reality. So make sure it’s yours to enjoy in sickness, and in health.

We all understand the importance of insuring our homes and cars, but in reality, our income is our most valuable asset. If you’re borrowing for the purchase of your home, it’s absolutely vital you hold appropriate levels of personal insurance cover, in particular income protection

Income protection (also known as salary continuance) provides a safety net if illness or injury leaves you unable to work. This insurance covers a percentage of your salary, helping you stay on top of essential expenses like mortgage repayments while you recover. In short: if you fall sick, income protection can help you avoid both defaulting on your loan and having to search for a new home during a health crisis.

 

Is your chosen loan well-structured and right for your circumstances?

Getting set up with a mortgage can feel overwhelming, but with the right structure and expert advice, a good loan can help you get your foot in the property market.

Unfortunately, most people we meet have poorly structured debt that unnecessarily costs them thousands of dollars each year. That’s why it’s crucial to work with a broker who understands your full financial picture, including the tax implications and your long-term strategy.

At Kearney Group, our mortgage brokers work as part of an Integrated Advice Team, alongside some of Australia’s best financial advisers, accountants and tax specialists. This ensures your loan facilities are strategically considered from all angles, set up in the correct name and structure, and with all the features you need and none you don’t.

With access to over 30 lenders, our mortgage brokers can hunt down the best loan for your circumstances – without allegiance to a specific bank or institution. 

Best of all, we handle your paperwork and liaise with lenders and solicitors on your behalf, making the loan application process smooth and less stressful for you.

 

Where to from here?

If you’re considering buying a property but aren’t sure how much you can afford to borrow or pay at auction, we’re here to help. 

Our integrated team of dreamers, doers and financial experts can provide advice across budgeting, cash flow management, lending, and tax to help you unlock your property goals.

Get in touch

 

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