Deciding whether you can afford this property is one of the most critical questions in your buying journey. Affordability has two distinct components that most buyers conflate: can I borrow enough to purchase it, and can I comfortably service the loan once I own it? Both questions need clear, data-driven answers before you proceed. Here is how GeeVee analyses affordability, breaks down lender criteria, calculates real costs, and stress-tests your financial position.
How Lenders Calculate Borrowing Power
Australian lenders assess borrowing power using a serviceability buffer, currently set at 3% above the loan’s actual interest rate (an APRA serviceability requirements mandate). This means if your loan rate is 6.2%, the lender tests your ability to service the loan at 9.2%. This buffer protects both you and the lender against rate rises and income shocks.
Several factors reduce your borrowing power significantly. Existing debts such as HECS, car loans, credit cards, and personal loans are factored in at their full limit, not just the outstanding balance. Dependants increase your assessed living expenses. Living expenses are assessed using either your declared expenses or the Household Expenditure Measure (HEM), whichever is higher. Part-time or casual income is typically shaded 20 to 40% by lenders to account for variability. If you are self-employed, lenders average your last two years of tax returns, which can penalize recent business growth.
A typical Melbourne buyer earning $95,000 per year with a $15,000 HECS debt, $8,000 credit card limit, and $450/month living expenses might have a borrowing capacity of approximately $520,000 to $560,000, depending on the lender’s assessment policies. This is substantially less than the $900,000 median house price in many inner suburbs.
The Real Costs of Buying: Beyond the Purchase Price
The purchase price is just the beginning. To understand if you can afford this property, you must budget for transaction costs that typically add 4 to 6% to the purchase price. On a $900,000 Melbourne property, expect to pay approximately $49,070 in stamp duty calculations if you are an owner-occupier (first home buyers may receive concessions). Legal and conveyancing fees range from $1,500 to $2,500. Building and pest inspections cost $400 to $800. Lender valuation fees range from $0 to $600, depending on the lender. Loan establishment fees can be $0 to $700.
The largest hidden cost is Lenders Mortgage Insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80%. On a $900,000 property with a 10% deposit ($90,000), your LVR is 90%, and LMI can be $10,000 to $30,000 or more, depending on the lender and your profile. This is a one-time premium that protects the lender, not you, if you default. It is capitalized into the loan or paid upfront.
Total purchasing costs on a $900,000 property can easily reach $36,000 to $54,000 before you move in. If you only budgeted for the deposit, you will be short by tens of thousands of dollars.
The Stress Test: Can You Comfortably Service It?
Borrowing capacity does not equal affordability. A $700,000 loan at 6.2% over 30 years costs approximately $4,280 per month in principal and interest repayments. At the 3% serviceability buffer (9.2% test rate), the stress-test repayment is approximately $5,730 per month. Does your after-tax income comfortably accommodate this after paying for living expenses, utilities, insurance, maintenance, and discretionary spending?
If your gross income is $95,000 per year, your after-tax monthly income is approximately $6,300. After paying $5,730 in stress-test repayments, you have $570 left. That is not enough to cover food, transport, utilities, insurance, and emergencies. You cannot afford this property, even if the lender approves the loan at the lower actual repayment rate.
GeeVee recommends your monthly loan repayments should not exceed 30% of your gross income, and ideally stay below 25% for financial flexibility. On $95,000 gross income, this caps your comfortable repayment at $1,979 to $2,375 per month, implying a safe borrowing limit of $380,000 to $460,000 at current rates. This creates a substantial gap between what lenders will approve and what you can sustainably afford.
Testing for Income Disruption
What happens if you lose your job, take parental leave, or face a health issue that reduces your income by 30% for six months? If you are already stretched at 100% income, a 30% reduction will force you into mortgage arrears or distressed selling. If you have a buffer, you can draw on savings, reduce discretionary spending, or temporarily adjust your lifestyle without losing the property.
The Deposit Reality: How Much Cash Do You Actually Need?
You need a minimum 5% deposit to access First Home Guarantee schemes, which allow eligible first home buyers to borrow up to 95% LVR without paying LMI. However, 10% is more practical, as it avoids genuine savings requirements at some lenders and reduces your loan size. A 20% deposit avoids LMI entirely and gives you access to better interest rates and more lender competition.
On an $800,000 property, a 20% deposit is $160,000. Add $40,000 to $48,000 in purchasing costs (stamp duty, legal fees, inspections, moving costs), and you need $200,000 to $208,000 in cash before you can buy. If you only have $100,000 saved, you are $100,000 short, and borrowing that extra amount to cover costs pushes your LVR above 90%, triggering expensive LMI.
Many buyers underestimate this reality. They focus on the deposit and forget the additional 4 to 6% in transaction costs. GeeVee’s affordability analysis always includes total cash required, not just the deposit.
How GeeVee Helps You Afford This Property
GeeVee provides borrowing power calculators, suburb affordability data, and personalized financial stress-testing to answer the question: can I afford this property? Our tools account for APRA serviceability buffers, LMI costs, transaction fees, and income variability. We compare your target property against your actual financial capacity, not just lender pre-approval limits.
Before you make an offer, use GeeVee’s calculators and affordability reports at collings.com.au/portal to stress-test your finances, estimate total cash required, and identify the maximum property price you can sustainably afford. If you are stretching to afford this property, consider whether positively or negatively geared property structures improve your serviceability, or whether you should I refinance my mortgage to free up borrowing capacity.
Final Affordability Checklist
Before you proceed, verify: (1) Can I borrow enough to buy this property at my target LVR? (2) Can I comfortably service the loan at the stress-test rate of 3% above the actual rate? (3) Do I have enough cash for deposit plus 4 to 6% transaction costs? (4) Can I sustain repayments if my income drops 20 to 30% for six months? If the answer to any of these is no, you cannot afford this property yet. Adjust your target price, increase your deposit, reduce existing debts, or wait until your income or savings improve.
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