So I find two things stop people from buying property. One is lack of cash or deposit and two is their risk profile around stepping outside and making that transaction. So I wanted to chat to you today about borrowing capacity or having the ability to look appealing to the banks so that they’ll lend you money.
Now the first thing I must say is you need a sophisticated mortgage broker in your corner to ensure that they look across all lenders available to choose the best one for your situation. Long gone are the days where you go and have a coffee with your local branch manager and see them through for the next thirty years with no change. So let’s look at the equation first and foremost.
Buying power + serviceability = borrowing capacity
So your buying power is the cash or equity that you’ve got in your life when you’re ready to go and purchase something. So you’ve saved up some cash amount, or you’ve got a property which you release some equity from, or the bank will allow you to release the equity from that you can use as your deposit to go buy yourself your next property.
Serviceability is the incomes and assets and liabilities and dependents and everything that you’ve got in your life that either look favorably or unfavorably in your position. So incomes, how high are they? What’s the annual gross income? Is it stable? Assets and liabilities, what are your assets in your life vs what are your debts in your life. Are the debts over here bad debts like credit cards and personal loans and things like that. Dependents, have you got two kids, three kids, no kids. Are you buying with someone else, how does their position look like. So the bank does an overall assessment based on buying power and serviceability to come up with the borrowing capacity amount that says collectively this is how much you can go and purchase on that next property right now one affects the other. So you can’t have a whole heap of cash sitting here, but no income, that’s not going to work. Conversely you can’t be on $500,000 a year here, and have no cash or equity in your life. So the bank looks both at them importantly to collectively come up with a borrowing capacity, hope that makes sense to you.