Demystifying Property Finance

In this episode of Property, Straight Up, host Mel Dennis from Domain & Co sits down with Nathan Murphy, mortgage broker at Blue Rock, to demystify property finance from understanding what you can actually borrow, to structuring your lending for long-term growth.

Nathan brings nearly two decades of industry context from Blue Rock, a Melbourne-based multi-disciplinary firm covering accounting, financial advice, legal services, and mortgage broking, giving clients a rare one-stop-shop advantage.

WHAT WE COVER:

How much can you borrow right now?

Interest rates rising from 0.10% to 4.35% and elevated living costs have significantly reduced borrowing capacity. Banks also apply a 3% buffer on top of current rates, meaning a 6% rate is assessed at 9%. And even if you live frugally, the bank's Household Expenditure Measure, based on income, household size, and dependants may assume much higher spending than your reality.

 The biggest finance mistakes buyers make

Impulse buying without a current pre-approval is the number one mistake Nathan sees. Approvals from 6–12 months ago may no longer reflect what you can actually borrow. Waiting until you're under contract or unconditional to start the finance process can leave you paying higher rates through non-conforming lenders.

What a pre-approval actually does

A pre-approval means the bank has assessed your income, liabilities, living costs, and credit profile everything except the property itself. It gives you real confidence to search the market, and is especially critical if you're planning to bid at auction (where there's no finance clause to fall back on).

Structuring your loan for the future

Even first home buyers should think about debt structure from day one. Fixed vs. variable, principal-and-interest vs. interest-only, and ownership structure all have implications especially if the property may become an investment down the track. This is where having a team of advisors (accountant, financial advisor, mortgage broker) working together is invaluable.

Red flags that could derail your finance

- No credit profile (having zero debt history can actually be a problem with some lenders)

- Missed repayments on any debt, including AfterPay and buy-now-pay-later products

- The property type itself rural locations and small apartments don't meet all lenders' criteria

Nathan's one piece of advice

Get prepared before you start looking. See a mortgage broker (it costs you nothing brokers are paid by lenders), understand your borrowing capacity, get pre-approved, and build your team of advisors early. Preparation is the single biggest thing that separates a smooth purchase from a stressful one.

CONNECT WITH NATHAN MURPHY @ BLUEROCK

 Nathan Murphy

0477 000 506 | nathan.murphy@thebluerock.com.au

We're for business owners and people with ambitious goals. Our team of business and wealth experts all work together to get the best outcomes for clients. We know that business can be tough and that life gets busy, which is why we act as advisors, not just accountants, and bring together lawyers, finance brokers, digital specialists, insurance brokers, financial planners and grant consultants. Everyone you need on your team to make your life easier.

https://www.bluerock.com.au/

ABOUT DOMAIN & CO

Buying or selling a home is one of the biggest decisions of your life.

Often the biggest financial decision you’ll ever make.

Bigger than anything else you’ll sign your name to.

And the people meant to help you make it

have started to look a lot like the people you didn’t trust in the first place.

The polished ones in the sharp suits.

The corporate machines who never learn your name.

Or worst of all. No one. Just you and a portal and a hunch.

We’ve spent thirty years on both sides of property.

The buy and the sell. The boom and the bust.

The houses that grew. The ones that didn’t.

The agents you’d want in your corner.

The ones you wouldn’t.

We’ve walked the same families through five, six transactions across decades.

First home. Family home. Forever home. The next chapter after that.

So we don’t pitch. We don’t perform. We don’t take work we don’t believe in.

We just tell you what we’d do, if it were us in your position.

For property, told straight.

We’re your property people.

https://domainandco.com.au/

Timestamps:

0:00 Introduction & guest background

1:04 About Blue Rock

2:21 How much can you borrow right now?

4:35 Biggest mistakes buyers make

6:07 The 3% interest rate buffer explained

6:36 What is a pre-approval and why does it matter?

8:04 Buying at auction without pre-approval

9:02 Structuring your loan for future growth

11:05 Fixed vs variable in the current market

12:11 First home buyers vs investors

13:11 Red flags that could block your finance

15:25 Steps to take in the next 3–6 months

17:16 Check your credit score it's free

17:59 Nathan's one piece of advice

Transcript

0:00

One thing I've learned after nearly 30 years in property is that behind every property transaction there's a story, a big decision, and often a lot more emotion and complexity than people expect. This podcast is all about giving you access to the people, insights, and strategies behind smart property decisions so you can make better moves, whether you're buying your first home, investing, selling, downsizing, or planning your next step. I'm Mel Dennis from Domain ⁇ Co. and this is the Melbourne Property Brief. Today we're diving into one of the most important parts of any property journey, finance, and how to get it right from the start. I'm really excited to be joined today by Nathan Murphy from Blue Rock. Nathan is a highly experienced mortgage broker who works closely with clients to structure their lending in a way that not only gets them into the market, but also sets them up for future growth. What I love about Nathan's approach is not just about getting a loan approved, it's about strategy, planning, and making sure finance aligns with long-term goals. Nathan, thank you so much for joining me today. Thanks for having me, Mel. Nathan, can you tell us a little bit about what you do and the types of clients that you're typically working with? Sure. I am uh I'm a mortgage broker. Um so I work for a business called Blue Rock. We're based in Melbourne in the city. Uh we're a multidisciplinary firm. The business started up in 2008. Um, so about 18 years ago now. Uh started as a small boutique accounting firm founded by Peter Laylor. And over a period of time, that 18 years, it's diversified into multiple services. So we've obviously still got accounting, uh, but we've got some other divisions as well, including uh financial advice. Um, we've got digital marketing, we've got uh legal services, multiple other services too, and I help operate our mortgage broken division. It's fantastic. Like your clients can just be looked after from a holistic point of view. Like we've spoken to other podcasters about, you know, how important it is for people to have that right team around them. And one of your clients has that right team around them right from the start. Exactly right. Probably the majority of clients we work with are self-employed clients, they're business owners, so they're quite active in that space. Um, so we like to think we're a one-stop shop, really, for anything from a financial advice perspective for business owners in particular. And you're right, we we give that benefit of all different types of services. Amazing. There's a lot of noise around lending. I think that there's always noise. I don't can say at the moment, but there's always noise about lending. How much can people actually borrow in today's market compared to, say, a couple of years ago? It's changed a lot. So probably two drivers in particular, I think, that's that's caused that change. One is interest rates, which is obviously always a hot topic and has been uh particularly over the past couple of years. So we've seen the RBA cash rate increase from 0.10% to what is as of yesterday, sadly, 4.35%. So it's been a substantial increase. Um that's been a big driver to um sucking up a bit of what people have as their borrowing capacity for one. And I think the other big driver is is living costs, really. So people's daily living costs, every sort of cost has increased. The banks adopt a specific measure when they're assessing loan applications. It's called the household expenditure measure. And it's defined by people's income. It's defined by the amount of people in their household, including, you know, whether they're a couple, whether there's dependents as well. And based on Do they look at pets? They would look at pets, yeah, absolutely. But you're not really declaring a pet. But if you if if you're putting in pet costs, then absolutely they'll consider that as well. So it's defined by those sort of metrics. And let's say you declare that your living costs are $2,000 per month, the bank's household expenditure measure might be five and a half thousand, might be six thousand dollars as an example, they'll take the household expenditure measure. So because of that, we've seen um borrowing capacity restricted even further. So even if a family is living really frugally, they're not going to look at what they're actually spending. They're going to look at Exactly right. Which is a question mark you know, we get from a lot of clients around, you know, we can see that the banks have assessed our living costs over $5,000 as an example. We know that we only spend three and a half, four thousand dollars, but it's just a conservative measure the bank has in place. Um and I think there's a little bit of a that conservative measure is because of future-proofing them as well and making sure that in the next year or two, if living costs continue to increase, they've catered for that. So because of those two specific measures, I would think that borrowing capacity has certainly reduced. We're seeing people that come to us and say, we've been pre-approved 18 months ago for a million dollars, and now you're telling me I can only borrow eight hundred thousand dollars. And that's just the reality of what's happened with the economy. Absolutely. So, what are some of the biggest mistakes you see buyers making when it comes to finance? Uh good question. I think probably impulse buying and not being prepared is probably the big thing we see. And may maybe when they're getting that finance approved six or twelve months ago and thinking it's the same. Could be that as well. Yeah. So they've gone through the process previously and it's been a bit of time. They don't have an act of pre-approval in place. So I think that's probably the biggest issue we see where we see probably stressed clients come to us and say, hey, I've gone to the bank directly. I've already bought, I've got a contract to sell, um, and I'm not prepared. And the bank's actually said no to me, what do I do? So I think just that lack of preparation is probably the biggest mistake we see with with buyers. What's a case that you've seen where someone's done something too late in the process? I think exactly that. I think we've seen clients that have come to us with three days left on their finance course or past their finance course and it's unconditional. And I think most of the time, uh, depending on the client, but with clients that earn decent income where they know in their personal world they can afford it, you can generally place them somewhere. But in those instances, we've seen clients that have wanted to go to a major bank as an example, and it's too late, and they haven't been able to attain an approval there, and we've had to go to, you know, a third-tier lender or a non-conforming lender, and it's more costly. So there can be certainly an impact there from that. Yeah. And they're just sort of laying on, yeah, we we should be right. Yeah, we should be right. We've gone through that process previously, or we know we can afford it. Yeah. But that's not the bank's process. The banks do thing differently just to give you some understanding around interest rates. We spoke of before how they've increased and that's reduced people's borrowing capacity. The bank will actually adopt a 3% buffer on all interest rates as well. So that's one thing people don't account for. You know, they look at an interest rate at the moment of six percent. Um, and think, you know what, I've looked at a loan of 500 grand on a six percent rate PNO repayments. I can afford that. That's absolutely fine. But the bank's not assessing off that. They're assessing off an 8% interest rate, they apply a 3% buffer. So there's conservative measures that people need to account for as well. Absolutely. We hear the word pre-approval all of the time. Tell us a little bit about what that actually means and how buyers can rely on it. Sure. I think a pre-approval is great. I think it's it's pretty critical if you're looking to go through that property purchase journey. Um, what a pre-approval does is it's essentially applying for a bank loan, similar to what you would do if you actually had a property. The bank is running their credit reports. They're looking at your income streams, they're looking at your liabilities, they're looking at your living costs, and they're assessing off that full picture. So they're giving you the confidence based on everything other than the property that you're looking to buy, that you're approved. So I think that's really critical. If you're looking at buying a property, you should go through that process. And it just gives you the confidence to look at the market. There still is due diligence the bank needs to do over the property itself. So if we have you pre-approved and you come to me email and you say, hey, I've bought something, but maybe it's a really small apartment, maybe it's a rural location, something that doesn't quite fit that bank policy, that could cause issues. But they've done the due diligence on everything else. And it's probably a conversation with the bank itself or your mortgage broker around what is a suitable property that I can actually purchase as well. So we've got um, you know, properties in Melbourne and and all over Australia that are auctioned that you can't um say subject to finance. Like we we find that most people who have got subject to finance from a a private buying perspective already has a pre-approval. It's just going through that process that you just spoke about. What's the risk involved for people bidding at auction? Well, they obviously haven't had the opportunity for the bank to look at the property. That's the main element. They can still go and get pre-approved. And that's especially an auction, I would think that's far more critical. If you're buying privately, yes, you have the finance clause. So you still have that little bit of time if you're not pre-approved. Um little bit of safety net. It just gives you a safety net. That's right. But if you're looking at an auction, definitely have the pre-approval there to give you that comfort. They've done everything but look at that property. But yes, you are still at somewhat of a risk, I guess, with the property itself. But that's when you would lean on advisors. You'd lean on someone like yourself, like a property advocate, someone experienced that understands the property and can give you the confidence and advice that this is probably where you want to cop out at. This is the price that you want to get to at a maximum. I always find it amazing, someone being in auction, you know, generally a young person that's had advice from someone who doesn't know and um and they're trying to put finance clauses in on the auction day. I was like, oh no, that's not true. That's not gonna happen. That's not gonna work. Um, so for people thinking beyond just one purchase, and often they're not for their first purchase, but you know, should they be thinking about how important it is to structure lending right from the start? Yes. I think that's from a first home buyer to a seasoned investor, right? So a first home buyer, yes, you could be purchasing your first property to live in. So when you think of debt structuring options, it's generally pretty vanilla, it's pretty standard. But maybe that property in time's going to become investment as well. So I still think it's critical for a first-time buyer too. But yes, um, debt structuring from in regards to whether it's a variable loan rate or whether it's a fixed loan rate is a really critical piece. Whether it's principal and interest repayments or interest-only repayments is another piece as well. And is that all um that advice that you give is individual advice? Like it's not something you can say right right now because of what they're talking about, the interest rate rises, we're fixing everything. It should be individual. It should be based off every situation. Rates change daily. So we have a client yesterday that we've looked at, we would go through the same process for this for the client that we look at today. Absolutely. Um, and on top of that, I think the ownership structure is another thing as well that needs to really be considered, whether it's for a property that you're going to live in or a property that's going to be an investment, the ownership structure is another thing that you really need to make sure that you've done your due diligence and you get right from the get-go. There's certain elements that a mortgage broker can't say this is how it should be. That's financial advice. But that's when you would lean on an accountant or probably more so a financial advisor. And that's come out in a lot of the podcasts that we've been doing is how important it is to have that, you know, fantastic team around you to give you the right advice for the right advice. Absolutely. You know, like there's no point getting um financial advice from your mortgage broker, as you just said, or no point myself as a buyer's or vendors advocate talking to you about um tax savings or you know, that sort of thing, as individuals for each part of your of your journey. I think there's definitely three or four advisors that people should always have available and leveraging those whenever you can, especially when it when it comes to a property purchase. So interest rates are always in the headlines, we've touched on them. How should buyers actually be thinking about fixed versus variable right now? They should always both be considered. So, like I said, they can change daily. So we saw um obviously the RBA increased its cash rate yesterday, so that'll apply to the variable rates on offer and some fixed rates as well. But we actually haven't seen as of yet. We got an email from every single bank in the morning that said our variable rates have gone up by 0.25%, but we didn't get anything around fixed rates. So now there's a comparison around, well, fixed rates maybe at present they actually are more appetizing than a variable late. Whereas if you asked me a week ago, that that might not have been the case. And that might not be the case tomorrow. It might not be the case tomorrow. So but it's always a conversation that needs to be had, it needs to be clear on what is available, what's accessible for the client, and considering probably the next six to twelve months. And we, you know, don't have a concrete understanding of where the economy is going, but we should have a, you know, based on economists, based on people within the industry, should have a reasonable understanding of what's to be expected over the next six months, six to twelve months, I'd say, and basing the interest rate off that. Do you approach lending differently depending on whether someone is a first home buyer, upgrader, or investor? In some ways, yes. I think the structure should be the same. So I think whether you're a first home buyer, whether you're upgrading your home, whether you're a seasoned investor, all will get great benefit out of the conversation around borrowing capacity, the conversation around debt structure, around what banks are most suitable. We still see seasoned investors that have been with a bank for a considerable amount of time that finally go to a mortgage broker and look at what's available in the market and there's lower interest rates. So I think that holistic conversation should be had with all. I think it probably becomes more tailored with a first home buyer. I mean, that's because there is great benefits out there. So government benefits such as the first home buyer's deposit scheme, such as stamp duty exemptions and concessions. So it becomes probably a little bit more tailored in that aspect. If you're looking at someone that's looking to upgrade, maybe there's a conversation to be had around bridging finance, but it just depends on the circumstances. Great. Do you think there's any red flags that might stop someone from getting finance that they might not be aware of? So I guess this is really honing in on those first home buyers as well. Yes. Um, what stops them getting finance that they just would not have thought about? Yep. It's a it's a good question. So I um when I stepped into mortgage broking about five years ago, so I actually had a decline for a client. It was um when I was in my infant stages as a mortgage broker, um, roughly around five years ago. And the decline was because the client didn't have a credit profile. So they had never taken on any form of debt whatsoever. Which you'd think is a good thing. We did think it was a good thing. But this specific bank or lender has so much trust and faith in credit reporting. That's a big driver behind why they are who they are and why they're a good bank. And then because that client didn't have any credit profile, they declined it. So we had to pivot elsewhere. So me telling my kids did not get a credit card. It's not necessarily yeah, everyone has their own different circumstances. But I think, yeah, credit impairment's probably the big one. A lot of people don't have access to their credit reporting for one, and that's something that you need to do your due diligence on. And if we've got loan accounts with misrepayments, or let's even say, you know, previous bankruptcy is an example, that can really impact what credit options are available. And then I think the next thing is the type of property itself. So the asset. So if you're looking like at a rural location as an example, if you're looking at a small apartment, there's little niche properties that unfortunately some banks don't accept. So I think that's where you need to leverage your mortgage broker or a property advocate or someone within that industry to understand is this appropriate property. So that's probably another element that could slip you up as well. Yeah, great. Um, I've heard of um issues around, you know, the afterpays and things like that. Um is that only if they haven't been paid on time or is that taking them out because you've buying something that you can't essentially afford in the first instance? But then, you know, I guess circling back to the credit rating. It's a form of credit. So it's actually um assessed by the bank similar to a credit card. So it will impact your borrowing capacity. Um, and certainly they'll look at the statements. So you need to ensure timely repayments. If you've got misrepayments, that one will actually impact your credit score, but also doesn't reflect well when you're going through that bank application. Any form of misrepayment to the bank is a big question mark because they say, well, if you can't maintain those repayments, how can you maintain a bank loan that's 10 times the amount of that, if not more? So if someone is thinking about buying in the next three to six months, Nathan, what do you think other steps they should be taking right now? I think preparation is key. That's a huge thing for me. So doing that due diligence, meeting with um whether it's someone in a bank, whether it's a mortgage broker, and going through the process of understanding what is your borrowing capacity and what can you achieve, what's potential debt structure options, just getting everything right before you actually go through that process. That's talking with a mortgage broker, but I'd certainly also recommend taking on as much advice as you can. So some people will have a financial advisor, and that's a really um key conversation to have with someone like that. And then leveraging other advisors as well, whether it be a property advocate, whether it be an accountant, and just ensuring you're prepared as possible. There's just nothing wrong with being prepared. It's really critical and it can just make sure that you're setting yourself up for you know future purposes. Um from my side, I often see finance and property decisions needing to work in closely together. So, how important is it for buyers to have that full team around them? Yeah. Exactly like I was just saying, it's it's critical. We work with property advocates all the time, and um majority of property advocates we work with won't proceed forward unless they have a pre-approval. And that's that due diligence piece I'm talking about, where I think you need to go through the process with a bank first before you become really serious about acquiring property, get yourself pre-approved, and then leverage that property advocate. I think the two combined just give you quite a foolproof situation for future purposes where you know you're getting the most out of the bank, you're getting the best interest rate, the most suitable bank solution, the right debt structure. And then secondly, you're getting the right asset. Whether that asset's for you to live in and, you know, grow a family in, spend the next five to ten years in, or whether it's for investment purposes and you're looking at, you know, future capital growth. You've touched a couple of times on a credit score. Yes. Can people find out their own credit score? You can, yeah. So there's various websites that will do it, or you can you can utilize a mortgage broker to do that on your behalf as well. Absolutely. So it is accessible information. You just need to have the right resources and contacts to review. And reviewing your credit score doesn't impact your credit rating. So it's not putting any inquiry on your credit reporting. Um so that's part of that due diligence you really should go through. Um whether you if you're going for finance, whether you go through a bank, whether you go through a mortgage broker, that should be essentially the f one of the first steps that's taken is looking at what your actual credit report is. Before actually submitting that. Absolutely. Before submitting it, yeah, that is a critical requirement. Absolutely. Fantastic. In closing, if someone listening today takes just one piece of advice, what would you want that to be? I m I touched on before that I feel like you know some people can impulse by. So they see something, they go on realestate.com, they see a property, they think it's perfect, and they go buy it. And I think that's okay, but I really think everyone needs a team of advisors around them. Some people can't a financial advisor, an accountant, that can cost money. A mortgage broker doesn't cost money. We are remunerated by banks and lenders directly. I think there's great benefits in seeking the advice of someone like that. If you can have a financial advisor behind you, then that is absolutely fantastic. And likewise, we're a property advocate too. So my main piece of advice would be to lean on those advisors. Um, do your due diligence up front, be prepared for your next purchase or your next upgrade, whatever your intention is, and just make sure you're in a situation where you're prepared. Nathan, thank you so much for joining us on our very first podcast. It was incredibly valuable to hear your tips and tricks. So if anyone is listening and would like to connect with Nathan from Blue Rock, we'll include his details in the show notes. If you're thinking about buying or selling or just want clarity around your next move, feel free to reach out. Uh, myself and the team at Domain Co. are always happy to have a chat. Thanks for tuning in to the Melbourne Property Podcast. And don't forget to subscribe so you don't miss the next episode. Thanks for having me, Mel. Thank you. Thank you.