Borrowing capacity for an investment property in Australia is assessed differently from an owner-occupier home loan. Banks include a portion of rental income, apply higher investment loan interest rates, and often apply tighter restrictions on LVR. Understanding how lenders assess investment property loans helps investors plan their portfolio more accurately.
How Banks Assess Investment Property Borrowing Capacity
Australian banks (APRA-regulated lenders) use a serviceability assessment to determine how much you can borrow:
- Gross income: Your salary, wages, business income, and existing rental income from other properties
- Rental income from the new property: Typically included at 75% of expected gross rent (lenders discount to account for vacancy and management costs)
- Existing liabilities: HECS-HELP debt (assessed at minimum repayment), credit card limits, personal loans, existing mortgages, car loans
- Living expenses: Assessed using the Household Expenditure Measure (HEM) as a minimum, or your actual declared expenses if higher
- Stress rate (assessment rate): Lenders assess your ability to repay the loan at a rate typically 3% above the actual loan rate (APRA buffer requirement). At a 6.5% actual rate, you are assessed at 9.5%
Rental Income — How Banks Calculate It
Most lenders include 75–80% of expected gross rent as assessable income in your borrowing capacity calculation.
Example:
- Expected gross rent: $600/week = $31,200/year
- Bank includes at 75%: $23,400 as assessable income
Some lenders use 80% — check with your lender or mortgage broker.
Investment Loan Rates vs Owner-Occupier Rates
Investment property loans typically carry slightly higher interest rates than owner-occupier loans — often 0.2–0.6% higher. This is a permanent structural difference (not a temporary market phenomenon) — reflecting higher risk assessed by lenders for investment lending.
In 2026, Australian variable investment loan rates vary widely by lender and LVR, but the gap between owner-occupier and investor rates has remained. A mortgage broker can compare rates across lenders.
LVR Requirements for Investment Properties
| LVR | Deposit required | LMI |
|---|---|---|
| ≤80% (standard) | 20%+ | No |
| 80–90% | 10–20% | Yes (see below) |
| >90% | <10% | Yes — may not be available from all lenders |
Most lenders cap investment property lending at 90% LVR. A few specialist lenders go to 95% with LMI. A 20% deposit (80% LVR) avoids LMI and typically secures better rates.
Impact of Existing Debt on Borrowing Capacity
Existing debts significantly reduce investment borrowing capacity:
- HECS-HELP: Repayment amount (based on income thresholds) is included as an expense — reducing borrowing capacity
- Existing mortgages: Full principal and interest assessment on existing loans
- Credit cards: Limit (not balance) is typically assessed — even if you pay the card in full each month. Closing unused cards before applying improves capacity
- Personal loans and car loans: Full repayments assessed as expenses
Example — Borrowing Capacity Calculation
| Income item | Amount |
|---|---|
| Gross salary | $120,000 |
| Rental income (at 75%) | $23,400 |
| Total assessable income | $143,400 |
| Expense item | Amount |
|---|---|
| Living expenses (HEM estimate) | $24,000 |
| HECS-HELP repayment | $6,000 |
| Existing owner-occupier mortgage (P&I) | $28,800 |
| Credit card (3% of $10,000 limit) | $3,600 |
| Total expenses | $62,400 |
Net monthly surplus available for investment loan servicing (at assessment rate): varies — a mortgage broker or lender’s calculator provides a specific figure.
Using a Mortgage Broker
Given the complexity of investment lending — varying lender policies on rental income, assessment rates, and LVR requirements — using a mortgage broker is common for property investors. A broker can compare policies across 20–30+ lenders to find the highest borrowing capacity or best rate for your specific situation.
Related Articles
- Interest-Only Loans for Investment Properties
- LMI on Investment Properties
- Stamp Duty on Investment Properties
- How to Invest in Property Australia
- Property Investing hub
Frequently Asked Questions
Does rental income count as income for an investment property loan? Yes, but lenders typically include only 75–80% of expected gross rent (not 100%) to account for vacancy and costs. Some lenders and some loan types may apply different discounts — check with your lender.
Can I use equity in my home as a deposit for an investment property? Yes. Many investors access the equity in their owner-occupier home via a home equity loan or line of credit and use those funds as a deposit for an investment property. This strategy increases total debt and must be carefully assessed for serviceability.
How does HECS-HELP affect investment property borrowing? HECS-HELP repayments are included as a liability in the borrowing capacity calculation. At higher incomes, HECS repayments can reduce borrowing capacity by $30,000–$60,000 depending on the repayment rate and loan size.
This article provides general financial information only. Borrowing capacity depends on individual financial circumstances and lender policies that change over time. For advice tailored to your situation, speak with a licensed financial adviser or mortgage broker. You can find a financial adviser through the ASIC financial advisers register or MoneySmart.