Money

How do banks assess you for a home loan?

Published

1 month ago

October 5, 2025

The Conversation

Ama Samarasinghe, RMIT University

Navigating the money side of buying a home can be daunting – especially if it’s your first time.

Unless you’ve recently come into a small fortune, you’ll need to have saved a deposit and take out a home loan.

That means engaging with the world of banks and mortgage brokers, and grappling with what might be intimidating-sounding jargon – terms like “pre-approval”, “offset accounts” and “serviceability buffers”.

Here’s a general guide to some of the essential steps: how to figure out what you can afford, how the loan process works, and some key things to watch out for before taking the plunge.

How much can you afford?

Taking out a home loan means you’ll be required to make regular repayments over many years. So, a bank or other lender will first want to make sure you can afford them.

This article is part of The Conversation’s series on buying a first home.

We’ve asked experts to unpack some of the biggest topics for first-home buyers to consider – from working out what’s affordable and beginning the search, to knowing your rights when inspecting a property and making an offer.

It’s important to understand the difference between borrowing capacity and affordability.

Your borrowing capacity is the amount a lender is willing to offer you, based on your income and debts, and their own stress tests. Affordability, on the other hand, is about you – your lifestyle, choices and actual spending patterns.

These two things are related but don’t always align, so it’s important to factor affordability into your decision. Being clear on both helps you avoid taking on more debt than you can comfortably manage.

Doing your own calculations first

It’s a good idea to start with your own numbers. List all your household expenses over at least the past six months – everything from groceries to streaming subscriptions – and work out the monthly average.

Streaming apps on a smart TV — Monthly subscriptions – such as streaming services – can have an impact on borrowing power.
Oscar Nord/Unsplash

After setting aside some room for savings and unexpected costs, the remainder gives you an indication of what could be available for mortgage repayments.

As a rule of thumb, many suggest keeping repayments to no more than about 30% of your after-tax income.

Here are a few tips to avoid mortgage stress:

Budget for reality, not hope. Don’t assume you’ll slash spending just because you’ve bought a home.
Stress-test your budget. Could you still make the repayments if your interest rate rose by 0.25–0.5%? What if it rose by 1-2%?
Don’t forget the extra costs that come up with home ownership. Factor in insurance, council rates and higher utility bills in a larger home.

How much will the bank lend you?

Your borrowing power depends mainly on:

household income
living expenses and debts (credit cards, car loans, buy-now-pay-later arrangements)
number of financial dependants.

Most banks have online calculators in their banking apps to check your borrowing capacity. The Australian Securities and Investments Commission (ASIC)’s Moneysmart site also provides calculators for borrowing and repayments.

Lenders are also required by law to check a borrower could still afford repayments if interest rates rose by a certain amount. This “serviceability buffer” is currently three percentage points.

Pre-approval doesn’t guarantee a loan

Getting pre-approval means a lender has reviewed your finances and indicates they’re willing, in principle, to lend you up to a certain amount.

But it isn’t a binding contract. You’re not locked into taking the loan, and the lender isn’t legally bound to provide it.

Still, getting pre-approval can have some benefits, including:

giving you confidence about your borrowing capacity
helping set realistic price limits and narrowing a property search
signalling to real estate agents and sellers that you’re a serious buyer, which can make you more competitive in a hot market.

At auctions, pre-approval is especially important. Once the hammer falls, the sale is binding – there’s no cooling-off period and no finance clause.

If you don’t have pre-approval in place, you could win the bid but may be unable to secure finance, leaving you at risk of losing your deposit.

Different types of loan

One of the first decisions you’ll face is whether to go with a principal and interest loan or an interest-only loan.

Principal and interest is the standard choice. Each repayment reduces both your loan balance and the interest owed. Most first-home buyers opt for this option because it steadily pays down the debt.

Interest-only loans mean that for an agreed period (say five years), you only cover the interest. Repayments are lower during that time, but the loan balance itself doesn’t shrink.

To illustrate, if you took out a $200,000 interest-only loan at 5% for five years, you’d pay $10,000 a year in interest. But at the end of the five years, you would still owe the full $200,000.

Interest-only loans can make sense for some investors focused on cash flow, but they’re far less common for first-home buyers.

Finding a loan

There are many ways to find a loan that suits your needs. You can compare products directly with lenders, use comparison sites, or go through a mortgage broker.

Mortgage brokers compare loans on your behalf and are often paid a commission by the lender, meaning you aren’t directly charged a fee.

It’s important to make sure they’re licensed (check ASIC’s professional register), reputable, and – if possible – recommended by family or friends.

A good broker will break down fees, features and hidden costs so you’re comparing more than just the interest rate. Before you sit down with a broker, think about what matters most to you: getting the lowest cost loan, or flexibility through features?

Take offset accounts as an example, where savings can reduce interest on the loan. An offset is a transaction account linked to your loan. If you owe $450,000 but keep $30,000 in the offset, you’ll only pay interest on $420,000.

Another common feature is called a redraw facility. This lets you make extra repayments (thus reducing the amount of interest you pay) and withdraw them later if needed.

Disclaimer: This article provides general information only and does not take into account your personal objectives, financial situation, or needs. It is not intended as financial advice. All investments carry risk.

Ama Samarasinghe, Lecturer, Financial Planning and Tax, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Money

Green finance was supposed to contribute solutions to climate change. So far, it’s fallen well short

Published

1 day ago

November 11, 2025

The Conversation

Simon O’Connor, The University of Melbourne; Ben Neville, The University of Melbourne, and Brendan Wintle, The University of Melbourne

A decade ago, a seminal speech by Mark Carney, then governor of the Bank of England and current Canadian prime minister, set out how climate change presented an economic risk that threatened the very stability of the financial system.

The speech argued the finance sector must deeply embed climate risk into the architecture of the industry or risk massive damages.

It was Carney’s description that stuck, calling this the “tragedy of the horizon”:

that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors, imposing a cost on future generations that the current generation has no direct incentive to fix.

He added that by the time those climate impacts are a defining issue for financial stability, it may already be too late.

What happened next

Carney’s speech triggered global financial markets to start accounting for risks related to climate change. Done well, green finance would flow to those companies contributing solutions to climate change. Those damaging the climate would become less attractive.

Governments rolled out strategies to support this evolution in finance, in the European Union, United Kingdom, and Australia’s Sustainable Finance Strategy in 2023.

Carney’s solution to this tragedy lay in better information. In particular, companies must report consistently on their climate change impacts, so that banks and lenders could more clearly assess and manage these risks.

A global taskforce was established that set out standards for companies to disclose their impacts on the climate. These standards have subsequently been rolled out around the world, most recently, here in Australia.

Finance has yet to deliver for the environment

But has Carney’s tragedy of the horizon been remedied by these efforts?

There have been some successes: the global green bond market has grown exponentially since 2015, becoming a critical market for raising capital for projects that improve the environment.

However, beyond some positive examples, the tragedy of the horizon remains. Indeed, the Network for Greening the Financial System (a grouping of the world’s major central banks and regulators from over 90 countries) concluded climate change is no longer a tragedy of the horizon, “but an imminent danger”. It has the potential to cost the EU economy up to 5% of gross domestic product by 2030, an impact as severe as the global financial crisis of 2008.

A report this year found climate finance reached US$1.9 trillion (A$2.9 trillion) in 2023, but this was far short of the estimated US$7 trillion (A$10.7 trillion) required annually. A step change in the level of investment in low carbon industries is required if we’re to achieve Paris Agreement goals.

In the decade since Carney’s speech, other critical sustainability issues have arisen that threaten the financial system.

The continuing loss of biodiversity has been recognised as posing significant financial risks to banks and investors. Up to half of global GDP is estimated to depend on a healthy natural environment.

The economic cost of protecting nature has been put at US$700 billion (A$1.07 trillion) a year, compared with only US$100 billion (A$153 billion) currently being spent.

The finance sector is falling well short of delivering the level of capital needed to meet our critical sustainability goals. It continues to cause harm by providing capital to industries that damage nature.

Dealing with symptoms, not the cause

Despite nearly a decade of action in sustainable finance, the extensive policy work delivered to fix this tragedy has merely subdued the symptoms, but to date has not overcome the core of the problem.

The policy remedies put forward have simply been insufficient to deal with the scale of change required in finance.

While sustainable finance has grown, plenty of money is still being made from unsustainable finance that continues to benefit from policies (such as subsidies for fossil fuels) and a lack of pricing for negative environmental impacts (such as carbon emissions and land clearing).

While policies such as better climate data are a prerequisite to a greener finance system, research suggests that alone they are insufficient.

The University of Melbourne’s Sustainable Finance Hub works to rectify this tragedy, using interdisciplinary solutions to shift finance to fill those significant funding gaps.

1. The tools of finance need to evolve, in terms of the way assets are valued and performance is measured, ignoring negative impacts. Currently, investors disproportionately focus on the next quarter’s performance, rather than the long-term sustainability of a company’s business model.

2. Big sustainability challenges such as climate change and nature loss require a systems-level approach. Chasing outsized returns from individual companies that are creating climate problems can undermine the success of the whole economy. This in turn can erode overall returns across a portfolio.

3. Capital is simply not flowing to sectors critical to our achievement of net zero and a nature-positive economy. These include nature protection, emerging markets, climate adaptation, health systems and Indigenous-led enterprises.

4. “Invisible” sectors in the economy continue to emit greenhouse gases without investor scrutiny. State-owned enterprises and unlisted private companies are essential to decarbonise, but are left out of the regulatory response.

Without a doubt, Carney helped us to recognise that our biggest sustainability challenges are also our biggest economic challenges.

Despite a decade of momentum for sustainable finance, the tragedy of the horizon looms large. New approaches to finance are required to ensure our future is protected.

Simon O’Connor, Director, Sustainable Finance Hub, The University of Melbourne; Ben Neville, A/Prof and Deputy Director of Melbourne Climate Futures, The University of Melbourne, and Brendan Wintle, Professor in Conservation Science, School of Ecosystem and Forest Science, The University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Money

Are we in an AI bubble or just a market reality check?

Tech stocks falter as AI boom faces reality; market shifts towards gold amidst growing investor caution.

Published

6 days ago

November 6, 2025

Ahron Young

Tech stocks falter as AI boom faces reality; market shifts towards gold amidst growing investor caution.

Global tech stocks are losing altitude as investors question whether the AI boom has gone too far — or if the market is simply returning to earth after years of euphoric growth. With valuations for chipmakers and AI giants stretched to perfection, analysts warn that expectations may finally be colliding with economic reality.

In this segment, Brad Gastwirth from Circular Technologies joins us to unpack the trillion-dollar question: is this a healthy correction or the first crack in the AI gold rush? From hyperscaler capex surges to regulatory risks and fragile market leadership, he breaks down what’s driving investor nerves.

We also explore how the market rotation into gold and real assets reflects growing caution, and what this could mean for the future of AI-driven investing.

Subscribe to never miss an episode of Ticker – https://www.youtube.com/@weareticker

#AIBubble #TechStocks #MarketCorrection #Semiconductors #Investing #FinanceNews #AIStocks #TickerNews

Money

Inflation rise reduces chances of Reserve Bank rate cut

Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs

Published

2 weeks ago

October 29, 2025

ticker NEWS

Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs

In Short:
– Rate cut likelihood by the Reserve Bank has decreased due to a rise in annual inflation to 3.2 per cent.
– Significant price increases in housing, recreation, and transport are raising concerns for the Reserve Bank.

The likelihood of a rate cut by the Reserve Bank has decreased significantly after a surge in annual inflation.

The Australian Bureau of Statistics reported that inflation for the year ending September rose to 3.2 per cent, reflecting a 1.1 per cent increase.

Trimmed mean inflation, a crucial measure for the Reserve Bank, was recorded at 1 per cent for the quarter and 3 per cent for the year. The bank anticipates inflation to reach 3 per cent by year-end, while trimmed mean inflation is expected to slightly decrease.

The quarterly rise of 1.3 per cent in September exceeded expectations. Governor Bullock noted that a deviation from the Reserve Bank’s projections could have material implications.

Financial markets reacted promptly, with the Australian dollar rising against the US dollar, while the ASX200 index fell.

The most significant price increases were observed in housing, recreation, and transport, indicating widespread price pressures that concern the Reserve Bank.

Despite the unexpected inflation rise, some economists believe the Reserve Bank may still consider rate cuts in December, viewing current price spikes as temporary due to the winding back of subsidies.

Economic Pressures

Broad-based economic pressures suggest that the Reserve Bank may not reduce interest rates at its upcoming meeting. Analysts highlight the need for ongoing support for households facing cost-of-living challenges.