Deposits, Equity and Borrowing Power - how do they work together?

You’ve found the perfect property, but before you get the keys, you’ll likely need a loan.

When it comes to getting a home loan, it’s not just about how much savings or equity you have, your borrowing power matters just as much.

I’m here to explain why you need both — and how they work together — to get you into your next home faster.

First things first: the deposit.

Whether it’s savings or equity, the deposit is your upfront contribution to the purchase.

If you’re a first-time buyer, it’s usually cash you’ve saved up.

If you already own property, it might be equity, which is the difference between your home’s market value and what you still owe. That equity can be a powerful tool for your next purchase, renovations, or even investing.

A solid deposit shows the bank you’ve got financial discipline and skin in the game. Generally, lenders like to see 10–20%, and a bigger deposit can save you money on things like Lenders Mortgage Insurance.

But here’s the thing: a deposit alone isn’t enough. You also need borrowing power.

Borrowing power is how much a lender thinks you can afford to repay. They’ll look at your income, subtract your day-to-day expenses, and work out what’s likely left over each month to cover loan repayments.

They’ll also stress test those repayments at a higher interest rate (usually 3% more!) to make sure you can still afford them if interest rates rise. Remember, the bank doesn’t want to repossess your home - that’s a hassle for everyone.

Let’s say you’ve got a million dollars in savings or equity (impressive!). But unless you can show the bank that you have the income to comfortably repay the loan, you won’t be approved for that loan.

And on the flip side, you might be earning a million dollars a year (also impressive!). But without a deposit to cover at least 10–20% of the purchase price, a bank is unlikely to lend to you.

So, to get that loan across the line, banks want to see a balance of both:

✅ Financial capacity (borrowing power); and

✅ Financial commitment (deposit or equity)

A Loan Market broker can help you assess both and show you what’s possible in your situation.

Let’s figure it out together.


Published: 5/6/2025
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