Can I Afford to Buy a House in Melbourne?

The question isn't whether you can scrape together a deposit. The real question is whether your income, expenses and commitments will support the loan you need, and what type of property that allows you to consider.

Most couples looking at Melbourne property assume affordability means having enough for a deposit. But lenders look at your borrowing capacity first, which is calculated from your combined income minus all your regular expenses and existing debts. Your deposit determines how much Lenders Mortgage Insurance (LMI) you'll pay and which loan to value ratio you'll sit at, but it doesn't determine how much a bank will actually lend you. You might have $100,000 saved and still only qualify for a $450,000 loan, or you might have $60,000 and qualify for $650,000. The deposit and the loan amount are related, but they're not the same calculation.

How Lenders Calculate What You Can Borrow

Lenders assess your borrowing capacity by taking your combined gross income and applying what's called a serviceability buffer. They calculate your repayments at an interest rate higher than what you'll actually pay, usually around 3% above the current variable rate, to make sure you can still afford repayments if rates rise. Then they subtract your living expenses, any credit card limits (even if you pay them off each month), car loans, personal loans, and rental payments if you're not living rent-free. What's left determines the loan amount they'll approve.

Consider a couple earning $95,000 and $78,000 before tax. They pay $2,200 a month in rent, have a car loan with $18,000 remaining, and one partner has a credit card with a $12,000 limit that gets paid off monthly. The lender will assess that credit card as though it's maxed out, even if the balance is zero. After factoring in living expenses using either the Household Expenditure Measure or their actual declared spending (whichever is higher), this couple might have borrowing capacity around $680,000. That doesn't mean they should borrow that much, but it's the ceiling the bank will approve. If they have a 10% deposit saved, they're looking at properties up to around $755,000 once LMI is factored in, assuming they're comfortable paying that insurance premium.

What Melbourne Property Prices Mean for Your Budget

Melbourne's median house price sits well above $900,000 in many established suburbs, but there's significant variation depending on where you're willing to buy. Inner suburbs like Fitzroy North, Brunswick, and Northcote are largely out of reach for first home buyers unless borrowing capacity exceeds $850,000. But pockets in the outer north like Craigieburn or Wollert, or outer southeast areas like Clyde North and Officer, still have houses available between $600,000 and $750,000.

Units and apartments shift the equation. A two-bedroom unit in suburbs like Coburg, Preston, or Reservoir might sit between $450,000 and $600,000, which brings them within reach for couples with combined income around $140,000 and a deposit of $50,000 to $60,000. If you're looking at the southeast, Dandenong or Noble Park offer similar unit pricing. The tradeoff is often location versus property type. You can afford a house further out, or a unit closer in, but rarely both on a first home loan without significant household income or family assistance.

Using a Guarantor or Government Scheme to Improve Affordability

If your deposit is the limiting factor rather than your income, a guarantor loan or a government scheme can change what you can afford. The Home Guarantee Scheme allows eligible first home buyers to purchase with as little as a 5% deposit without paying LMI, which can save tens of thousands of dollars. For a $650,000 property, LMI on a 10% deposit might cost around $18,000 to $22,000 depending on the lender. Avoiding that cost through the scheme means you need less upfront cash and your borrowing capacity isn't reduced by the LMI premium being added to the loan.

A guarantor arrangement works differently. A parent or family member uses equity in their own property as security for part of your loan, which means you can borrow more or avoid LMI even without a 20% deposit. In our experience, this is particularly useful for couples who have strong income but haven't had enough time to save a large deposit. The guarantor isn't paying your loan or giving you money, they're just allowing the bank to use their property as additional security. Once you've paid down enough of the loan or the property has increased in value, the guarantee can usually be removed.

The Real Cost Beyond the Loan Repayment

Affordability isn't just whether you can meet the monthly repayment. You also need to account for stamp duty, which in Victoria is calculated on a sliding scale and can add $30,000 to $40,000 to the purchase price of a $700,000 property (though first home buyers may be exempt or receive concessions depending on the property value). Then there's conveyancing, building and pest inspections, ongoing strata fees if you're buying a unit, council rates, insurance, and maintenance.

A variable rate home loan on $600,000 at current variable rates might require repayments around $3,500 to $3,800 a month depending on the lender and any rate discounts applied. Add another $300 to $500 a month for rates, insurance, and strata (if applicable), and your total monthly housing cost could sit between $3,800 and $4,300. If your combined take-home income is around $10,000 a month after tax, that leaves roughly $5,700 for everything else: groceries, transport, utilities, childcare if relevant, and some buffer for unexpected costs. That's manageable, but it doesn't leave much room for lifestyle expenses or additional savings. If your income is lower or your loan amount higher, the margin tightens quickly.

Running the Numbers Before You Commit

Before you start looking at properties in detail, use a borrowing capacity calculator to get a realistic sense of what lenders will approve. Then use a loan repayment calculator to see what those repayments will actually look like at different interest rates and loan amounts. This gives you a clearer picture of affordability than just looking at property listings and hoping the numbers work.

Once you know your range, you can decide whether to apply for home loan pre-approval before you start attending inspections. Pre-approval gives you certainty about your budget and makes your offers more credible to vendors, but it's not mandatory. If your financial situation is straightforward, some couples prefer to find the property first and then move quickly on the application. If your income is variable, you're self-employed, or you're relying on a guarantor or government scheme, getting pre-approval first removes uncertainty and saves time once you've found something you want to buy.

Affordability in Melbourne comes down to matching your income and deposit to the right property type and location. You might not be able to afford the suburb or house size you were hoping for, but that doesn't mean you can't afford to buy at all. It just means being realistic about what your current finances support, and whether you're willing to compromise on location, size, or property type to get into the market now.

If you're still not sure where you sit or you want to explore your options with someone who can access home loan options from banks and lenders across Australia, call one of our team or book an appointment at a time that works for you. We'll walk through your income, expenses, and deposit to work out what you can genuinely afford and what that means for your property search.

Frequently Asked Questions