When buying a home or investment property in Australia and considering your affordability you need to consider far more than just the purchase price. From deposits and loan repayments to stamp duty, legal fees and interest rates, understanding the true cost of buying is essential before you commit.
This guide breaks down what buyers need to factor in to determine their affordability, what deposit you’ll need, how interest rates affect borrowing power, and the additional costs many buyers overlook.
What Does “Affordability” Mean When Buying a property?
Affordability is not simply about what a bank will lend you, it’s about what you can comfortably repay while maintaining your lifestyle, even if interest rates rise and lifestyle changes i.e. the birth of a new family member or change of employment.
True affordability considers:
- Your deposit
- Loan repayments at current and higher interest rates
- Government taxes and duties
- Legal and purchase costs
- Ongoing ownership expenses of the property
Standard Deposit
- Most lenders prefer a 20% deposit of the purchase price
- This avoids Lenders Mortgage Insurance (LMI)
Example:
- $700,000 home purchase price
- 20% deposit requirement = $140,000
Lower Deposit Options
- 5%–10% depositsmay be accepted depending on your lender but this can also result in higher interest rates so make sure you check
- LMI usually applies (this can be expensive)
- Government schemes may assist eligible buyers
Sometime first-home buyers may qualify for lower deposit requirements under certain schemes, subject to eligibility, check with your local bank.
2. Interest Rates & Borrowing Power
Current Home Loan Interest Rates
- Interest rates change regularly, check with your local bank for current rates, and then check their rates against other banks to make sure you get the best rate available
- Fixed rates may be higher or lower depending on term length, again your bank will advise you on this
Why Interest Rates Matter
A small rate change can significantly impact repayments, for example:
- $600,000 loan at 6.0% ≈ ~$3,600 per month
- Same loan at 7.0% ≈ ~$4,000 per month
Lenders also assess your ability to repay at higher “buffered” rates, not just today’s rate to make sure you aren’t over committing.
3. Stamp Duty (Transfer Duty)
Stamp duty is one of the largest upfront costs for buyers.
Approximate Stamp Duty (Owner-Occupier)
- $500,000 purchase → ~$8,750
- $700,000 purchase → ~$15,925
- $1,000,000 purchase → ~$38,025
First Home Concessions
Eligible first-home buyers may receive:
- Reduced stamp duty
- Full exemption under certain price thresholds
Always check eligibility before purchasing, your solicitor and/or banker can advise on this.
4. Legal & Conveyancing Costs
You’ll need a solicitor or conveyancer to manage the legal side of the purchase.
Typical Costs
- $1,200 – $2,500 depending on complexity of the purchase
This usually includes:
- Contract review
- Legal advice
- Settlement coordination
- Title transfer
5. Building & Pest Inspections
Strongly recommended for houses and many townhouses.
Typical Cost
- $400 – $800
This can save tens of thousands by identifying hidden issues before settlement. Many banks demand this prior to approving your loan.
6. Loan & Bank Fees
Depending on your lender, you may incur:
- Loan application or establishment fees
- Valuation fees
- Settlement fees
Typical Range
- $0 – $1,000+
Some lenders waive these as part of promotions, make sure you ask.
7. Other Upfront Buying Costs
Don’t forget:
- Moving costs
- Connection of utilities
- Initial council rates or body corporate adjustments
- Insurance (home & contents)
Tips to Improve Affordability as a Property Buyer
✔ Save a larger deposit to reduce repayments
✔ Avoid borrowing at your absolute maximum
✔ Consider different suburbs or property types
✔ Factor in future rate rises
✔ Get pre-approval before making offers
✔ Speak with a mortgage broker or banker for tailored advice funding advice
Final Thoughts
Affordability for home buyers is about preparation, realism and understanding the full financial picture, not just what the bank says you can borrow. By accounting for deposits, interest rates, stamp duty, legal fees and buffers for the future, you can buy with confidence and avoid financial stress.
Taking the time to calculate your true affordability upfront is one of the smartest steps you can take on your property journey.