Investment loan applications require more than your owner-occupied file
Lenders assess investment property finance differently to home loans. They expect rental income to cover most or all of the loan repayment, and they calculate your borrowing capacity using a serviceability buffer of at least 3 percentage points above the actual interest rate. They also discount rental income by around 20 per cent to account for vacancy and maintenance, which means every dollar of deposit and every dollar of salary matters more when you apply.
Consider someone earning a household income of $95,000 who owns a home in Craigmore and wants to buy a unit in nearby Munno Para West to rent out. The rental yield on that unit might sit at around $350 per week. After the lender applies a 20 per cent rental income discount, that $350 becomes $280 in the serviceability calculation. The lender then assesses whether the borrower can service the new loan using their existing salary, their existing mortgage commitments, and the discounted rental income, all while testing repayment at a rate 3 percentage points higher than the loan product rate. That calculation can tighten borrowing capacity by 15 to 20 per cent compared to an owner-occupied home loan.
From 1 February this year, lenders also face a 20 per cent cap on new investor loans written at a debt-to-income ratio of 6 times or higher. That cap applies separately to each lender's investor portfolio, which means some lenders will close their doors to high DTI applications earlier in the month than others. Timing and lender choice both matter.
Rental income needs to be verified with a lease and market appraisal
Lenders will not accept an estimate. They require a signed lease agreement showing the weekly rent, or a rental appraisal from a licensed property manager if the property is not yet tenanted. The appraisal must be dated within the last 90 days and should reflect current market rents in the suburb where you are buying.
In Craigmore, where most rental stock is made up of three-bedroom homes built in the past 20 years, a property manager's appraisal will usually reference comparable properties in the neighbouring streets rather than older housing stock near Stebonheath Road. If the appraisal comes in lower than you expected, lenders will use that lower figure in their serviceability calculation. Overestimating rental income on your application will either result in a reduced loan amount or a decline.
Deposit size and loan-to-value ratio shape your lender options
Most lenders will lend up to 90 per cent of the property value for an investment loan, but you will pay Lenders Mortgage Insurance on any loan above 80 per cent LVR. The premium is calculated on a sliding scale and can add several thousand dollars to your upfront costs. Some lenders cap investor lending at 80 per cent LVR regardless of LMI, and others will only lend above 80 per cent if you meet additional income or employment criteria.
If you are using equity in your Craigmore home to fund the deposit, the lender will order a valuation on your existing property and calculate usable equity as 80 per cent of that valuation, less your current mortgage balance. If the valuation comes in below your expectation, your usable equity shrinks and you may need to adjust your purchase budget or add cash savings to reach the required deposit level. We regularly see clients assume their home has increased in value based on recent sales in the street, only to find the bank's valuer takes a more conservative view.
Interest-only repayments reduce holding costs but require stronger serviceability
Many property investors choose interest-only repayments for the first few years to reduce cash flow pressure and maximise tax deductions. The interest portion of your loan repayment is fully deductible against rental income, while principal repayments are not. However, lenders assess interest-only applications at a higher interest rate buffer and apply a higher risk weighting under the capital standards that govern how much they can lend.
As an example, an investor applying for a $400,000 loan on a variable interest-only basis will be assessed as though they are repaying principal and interest at a rate around 3 percentage points higher than the actual product rate. The lender will also apply that assessment over a shorter loan term, typically 25 years rather than 30, even if the actual loan term is 30 years. That combination can reduce your maximum borrowing capacity by 10 to 15 per cent compared to a principal-and-interest application, but it also cuts your monthly repayment by around 30 per cent once the loan settles.
Negative gearing rules change from 1 July next year for new purchases
If you buy an investment property in Craigmore or anywhere else in Australia on or after 7:30pm on 12 May last year, the property will be subject to new negative gearing rules from 1 July next year. Under those rules, any rental loss can only be offset against other rental income or carried forward to offset future rental income or capital gains. You cannot offset the loss against your salary or wages.
Properties purchased before that date and time, including those under contract and awaiting settlement at 7:30pm on 12 May, remain fully grandfathered under the existing rules. The new rules do not apply to eligible new builds, which include dwellings constructed on previously vacant land and dwellings that replace existing properties where the total number of dwellings increases. A knock-down rebuild that does not increase dwelling numbers is not eligible.
This does not prevent you from borrowing, but it does change the after-tax cash flow and the long-term return on the property. If you expect the property to run at a loss in the early years, you need to be confident you can cover that loss from your salary without the tax offset, or you need to target a property with a higher rental yield or lower purchase price.
Your application will be declined if your liabilities are understated
Lenders verify every liability you declare and cross-check your credit file for any accounts you have not disclosed. This includes credit cards, buy-now-pay-later accounts, personal loans, car loans, and any existing mortgage commitments. If you hold a credit card with a $10,000 limit and a zero balance, the lender will still assess your serviceability as though you are carrying a $10,000 balance, because the credit is available to you.
Before you apply, pay out and close any accounts you are not using. If you have multiple credit cards, consolidate to one with a limit that reflects your actual spending rather than your maximum approved credit. The difference between a $15,000 total credit limit and a $5,000 limit can increase your borrowing capacity by $40,000 to $50,000, depending on your income and other commitments. Lenders will ask you to provide statements for every account, so there is no benefit in leaving unused credit open.
Variable or fixed rate depends on your cash flow and your view on where rates are headed
A variable rate gives you full access to offset accounts and unlimited additional repayments, which can reduce the total interest you pay over the life of the loan. A fixed rate locks in your repayment for a set period, usually one to five years, but restricts additional repayments to around $10,000 to $30,000 per year depending on the lender.
If you are holding the property on an interest-only basis and do not plan to make additional repayments, a fixed rate can provide certainty over your holding costs without giving up features you were not planning to use. If you expect to receive irregular income such as bonuses or contract payments and want the flexibility to park that cash in an offset account against the loan, a variable rate will deliver more value. Some investors split their loan between fixed and variable to access both structures, though that approach adds complexity and may involve higher fees.
You can explore your options and compare repayment scenarios using our mortgage repayment calculator before you make a decision. Once you have a clear view of your cash flow and your likely holding period, your choice between fixed and variable will follow.
Applying through a broker in Craigmore gives you access to lenders you cannot reach directly
Some of the most flexible investor loan products are only available through mortgage brokers. Those products often have higher LVR limits, lower interest rate margins, or more generous serviceability policies than the equivalent loans advertised directly to the public. A local broker in Craigmore will also understand which lenders are still writing high DTI investor loans in a given month and which have already hit their 20 per cent cap.
We work with lenders across the full panel, including the major banks, regional lenders, and non-bank specialists. That means we can match your specific situation to the lender most likely to approve your application at the lowest rate you qualify for, rather than submitting your file to a single lender and hoping for the right outcome. If your application requires a valuation on your existing Craigmore property to release equity, we will also coordinate that process and make sure the valuer has access to the information that supports your property value.
Call one of our team or book an appointment at a time that works for you. We will review your income, your deposit position, and your intended purchase, then walk you through the loan options available and the steps required to get your application across the line.
Frequently Asked Questions
How much deposit do I need for an investment loan in Craigmore?
Most lenders will lend up to 90 per cent of the property value, which means you need at least a 10 per cent deposit plus settlement costs. However, any loan above 80 per cent LVR requires Lenders Mortgage Insurance, and some lenders cap investor lending at 80 per cent regardless of LMI.
Do lenders use the full rental income when calculating my borrowing capacity?
No. Lenders discount rental income by around 20 per cent to account for vacancy and maintenance costs. They also require a signed lease or a rental appraisal from a licensed property manager dated within the last 90 days.
Can I still negatively gear an investment property I buy in Craigmore?
If you purchased the property before 7:30pm on 12 May last year, the existing negative gearing rules apply and you can offset rental losses against your salary. Properties purchased on or after that date are subject to new rules from 1 July next year, and rental losses can only be offset against other rental income or carried forward, unless the property is an eligible new build.
Should I choose a variable or fixed rate for my investment loan?
A variable rate gives you full access to offset accounts and unlimited additional repayments. A fixed rate locks in your repayment but restricts additional repayments and offset access. Your choice depends on whether you plan to make extra repayments and your view on future rate movements.
Why does an investment loan application take longer to assess than a home loan?
Lenders require additional documentation including rental appraisals or lease agreements, and they apply stricter serviceability tests including a 20 per cent discount on rental income and a 3 percentage point buffer on the interest rate. If you are using equity to fund the deposit, they will also require a valuation on your existing property.
