One common misunderstanding is treating the bank's “you can borrow X” as your shopping budget. It isn't the whole picture. A lender's figure reflects its assessment of how much it may be prepared to lend based on the information and criteria it applies. It isn't the same thing as a personal affordability assessment. Your own budget needs to consider the rest of the transaction and what repayments would mean for your circumstances.
Borrowing capacity vs maximum purchase price
They aren't necessarily the same number. Your property budget also needs to account for your deposit, buying costs, ongoing repayments and the financial buffer that makes sense for your circumstances.
Borrowing capacity is an estimate of how much a lender may be willing to lend, based on factors such as income, expenses, debts and other financial commitments.
Your property budget is the purchase price that fits within your available deposit, borrowing and other funds, after allowing for the costs of buying the property and the repayments that fit your circumstances. Borrowing capacity is one input into that figure, not the figure itself.
A lender's assessment doesn't necessarily capture every future expense or change in your circumstances. That's why your own budget can be different from the maximum amount a lender says you may be able to borrow.
How the pieces fit together
The contrast worth holding onto is between what a lender may lend and what fits your overall budget.
Borrowing capacity: what a lender may be prepared to lend
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Deposit and available savings: what you have available towards the purchase
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Buying costs: costs that sit outside the property price
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Your property budget: the property price that fits your overall financial position
Where this fits with conveyancing
Borrowing capacity is a lending question, so your lender or broker is the right place to take it. Where it meets us is at contract stage: signing a contract of sale commits you to a purchase price, so it is worth having a clear view of your overall position, your deposit, borrowing, buying costs and repayments, before you get there. We review the contract before you sign and handle the conveyancing once you do. For questions about what you can afford to repay, a lender or qualified financial professional can help.
