If you are staring at a listing and asking yourself “can I afford this property?”, the honest answer depends on four things working together: your borrowing capacity, your deposit, your upfront purchase costs, and your ability to service the loan over time. Nail all four and you have a clear, confident picture of your buying power. Miss one and you risk either over-committing or walking away from a property you could comfortably own.

This guide breaks each element down in plain language, weaves in the latest market data, and gives you a practical framework to apply before you make an offer.

How Do Lenders Calculate How Much You Can Borrow?

Borrowing capacity is the maximum loan a lender will approve based on your financial profile. It is not simply a multiple of your salary. Banks and non-bank lenders run a serviceability assessment that stress-tests your repayments at a rate typically 3 percentage points above the loan’s actual rate, a buffer mandated by the Australian Prudential Regulation Authority (APRA). In mid-2026, with variable rates sitting in the 6–7% range for many products, that means lenders are testing your ability to repay at roughly 9–10%.

The RBA’s 25 basis-point increase at its first 2026 meeting added another layer of caution for borrowers. According to the February 2026 Australian Property Market Review, interest rates, affordability, and serviceability remain the headline headwinds buyers must navigate this year. This is not a reason to panic, but it is a reason to do your sums carefully before falling in love with a listing.

Key factors lenders assess

• Gross income (salary, rental income, business income, bonuses)
• Existing debts (credit cards, car loans, personal loans, HECS/HELP balances)
• Living expenses (many lenders now use Household Expenditure Measure benchmarks)
• Number of dependants
• Employment type (PAYG, self-employed, casual, contractor)
• Loan term and type (principal-and-interest versus interest-only)

A rough rule of thumb is that a single applicant earning $100,000 per year with no existing debt might borrow somewhere between $450,000 and $550,000, though the exact figure shifts with every lender’s model. For a detailed breakdown of how those numbers translate to specific Melbourne postcodes, the Collings guide on what you can actually borrow walks through realistic borrowing scenarios with local context.

How Much Deposit Do You Actually Need in 2026?

The standard benchmark is a 20% deposit, which lets you avoid Lenders Mortgage Insurance (LMI). LMI is a one-off premium that protects the lender, not you, and can add tens of thousands of dollars to your purchase cost on a high loan-to-value loan. However, many buyers enter the market with a 10% or even 5% deposit if they qualify for government schemes or are willing to absorb the LMI cost.

According to the February 2026 market review, lower-value properties are increasing in price more rapidly than higher-value ones, partly driven by first homebuyer activity and government incentives. This makes the deposit hurdle a moving target, particularly in Melbourne and Brisbane, where entry-level stock is attracting competitive bidding.

Deposit sources lenders accept

• Genuine savings held for at least three months
• Proceeds from the sale of another property
• Gifts from immediate family (subject to lender policy)
• First Home Super Saver Scheme (FHSS) withdrawals
• Government grants and stamp duty concessions

Some buyers also explore whether their superannuation can play a role. If that is on your radar, the Collings explainer on whether you can buy property with your super covers the FHSS rules and the self-managed super fund pathway in detail.

What Upfront Costs Should You Budget for Beyond the Purchase Price?

This is where many first-time buyers get an unpleasant surprise. The purchase price is only the beginning. Stamp duty alone on a $700,000 Melbourne property is approximately $37,000 for a non-first-home buyer, though concessions reduce or eliminate this for eligible first buyers. On top of that, budget for:

• Conveyancing and legal fees: typically $1,500 to $3,000
• Building and pest inspection: $400 to $800
• Loan application and establishment fees: $0 to $900 depending on lender
• Lenders Mortgage Insurance (if depositing less than 20%): can range from $5,000 to $25,000+ depending on LVR and loan size
• Moving costs, connection fees, and immediate repairs: $2,000 to $10,000+
• Council rates and body corporate fees (for units): ongoing from settlement

As a general rule, budget an additional 4–6% of the purchase price in transaction costs. On a $750,000 home, that is $30,000 to $45,000 on top of your deposit. Ignoring this figure is one of the most common reasons buyers find themselves stretched immediately after settlement.

For a structured walkthrough of how all these layers interact, the property affordability check guide at Collings provides a step-by-step checklist you can work through before making an offer.

What Does Serviceability Mean and Why Does It Matter More Than Borrowing Capacity?

Borrowing capacity tells you the maximum a bank will lend. Serviceability is the more personal question: can you comfortably repay that loan while maintaining your lifestyle, covering emergencies, and not lying awake at night? These two numbers are not always the same, and the gap between them is where financial stress lives.

A simple serviceability check involves calculating your monthly repayment on the proposed loan at the current rate, then at the APRA stress-test rate, and comparing both against your after-tax income. Most financial advisers suggest keeping total housing costs (repayment plus rates plus insurance plus body corporate if applicable) below 30–35% of gross household income. Exceeding that threshold does not make a purchase impossible, but it warrants careful scenario planning around job changes, rate rises, or unexpected expenses.

The 2026 market context for serviceability

Herron Todd White’s February 2026 Month in Review for Victoria notes that the Melbourne market has become a “selector’s market,” where success depends heavily on choosing the right location and property type. Affordability and proximity to infrastructure are now the key purchase drivers, with the Metro Tunnel opening in late 2025 reshaping demand corridors across the inner west and south-east. CBD two-bedroom unit median rent is tracking at $730 per week, with unit values forecast to grow by 7.1%, suggesting that buyers who can service a unit purchase now stand to benefit from strong capital and rental growth.

Nationally, Herron Todd White’s March 2026 review describes the investor landscape as “diverging into a more selective, constraint-driven” environment. Perth, Brisbane, and Adelaide are posting solid monthly gains, while Sydney and Melbourne remain subdued but are widely tipped to regain momentum in the second half of 2026. In Brisbane’s inner city, entry-level units in Fortitude Valley and Bowen Hills are generating gross yields of 5.5 to 6%, giving serviceability-focused buyers a rental income buffer that helps offset repayment pressure. A one-bedroom unit at 908/977 Ann Street, Fortitude Valley sold in February 2026 for $675,000, illustrating the price points at play for investors targeting that yield range.

If you are weighing up the timing question alongside affordability, the Collings analysis of whether to buy property now in 2026 covers the current supply and demand dynamics in detail, including the fact that new listings are running around 20% below their five-year average, which continues to support prices even as rate pressure bites.

How Should First-Time Buyers and Investors Approach the Affordability Question Differently?

Owner-occupiers typically run a single serviceability calculation anchored to their income. Investors have a second lever: rental income. According to the March 2026 Herron Todd White national review, a growing number of younger buyers are adopting a “rentvesting” strategy, renting in the suburb they want to live in while buying an investment in a location they can afford. This approach lets them enter the market sooner, build equity in a yield-positive asset, and avoid being locked out of high-price zones entirely.

For investors, the affordability calculation shifts to include:

1. Gross rental yield (annual rent divided by purchase price)
2. Net yield after costs (property management, insurance, repairs, rates, vacancy allowance)
3. Negative or positive cash flow position and its tax implications
4. Capital growth outlook relative to holding costs

Brisbane’s outer northern corridor suburbs such as Brendale, Strathpine, and Mango Hill are flagged by Herron Todd White as offering sub-$1 million entry points with strong rental demand, making them viable for investors who cannot stretch to the inner-city $1.5 million-plus price points that now define prime detached housing in suburbs like Paddington. A worker’s cottage at 22 Hayward Street, Paddington sold in February 2026 for $1.78 million on just 405 square metres, underlining how far inner-city land values have moved.

Whether you are buying to live in or to let out, the fundamentals of the affordability assessment remain the same. For a comprehensive starting point specifically built around investment scenarios, the Collings resource on buying your first investment property covers everything from financing structures to property selection in one place.

What Practical Steps Can You Take Right Now to Improve Your Buying Position?

Understanding affordability is one thing. Improving it is another. Here are the highest-impact actions buyers typically take in the six to twelve months before purchasing:

• Reduce credit card limits (lenders assess the limit, not just the balance)
• Pay down or consolidate personal loans and car finance
• Build a consistent savings history of at least three to six months
• Get a formal pre-approval so you know your ceiling before inspections begin
• Use an experienced mortgage broker to compare serviceability policies across multiple lenders, as they vary significantly
• Check your credit report for errors or defaults that could reduce your borrowing capacity
• Understand stamp duty concessions available in your state for first home buyers or downsizers

Pre-approval does not guarantee a loan is issued at settlement, but it gives you a realistic anchor for your search and signals to vendors that you are a serious buyer, which matters in competitive markets.

Conclusion

The question “can I afford this property?” rarely has a simple yes or no answer. It sits at the intersection of your borrowing capacity, your deposit, your transaction costs, and your ongoing ability to service the debt without strain. In 2026, with rates elevated, supply constrained, and the market fragmenting by location and property type, getting your numbers right before you start inspecting is more important than ever. Run your calculations honestly, get professional advice from a broker and a buyer’s agent, and use the resources available to sense-check your assumptions. The buyers who succeed this year will be the ones who did the homework first.