Property values and interest rates move independently, and understanding that disconnect matters when you're borrowing to invest in Craigmore.
An investment loan is structured around what you can service today and what the property might return over time. When property values rise but interest rates climb alongside them, your borrowing capacity shrinks even as the asset you're trying to buy becomes more expensive. When values fall and rates drop, the reverse can happen. Neither scenario is inherently good or bad for investors. What matters is matching the loan structure to the conditions you're facing right now, and knowing which features give you room to adapt later.
How Borrowing Capacity Changes With Rate Movements
Lenders assess your capacity to service an investment loan by adding a buffer of 3.0 percentage points to the current interest rate. If you're looking at a variable rate of 6.5 per cent, the lender tests your application at 9.5 per cent. When rates increase, that buffer pushes the serviceability test higher, which reduces the amount you can borrow even if your income and deposit haven't changed. A borrower who could service a $450,000 investment loan at a 6.0 per cent variable rate might only qualify for $380,000 once rates move to 7.0 per cent, even though the buffer remains the same.
Consider a buyer who works full-time in Elizabeth and earns $85,000 a year, with a $60,000 deposit saved. At a 6.0 per cent variable rate, they might qualify for a $420,000 investment loan. If rates climb to 7.0 per cent before they apply, their borrowing capacity could drop to around $360,000. If property values in Craigmore have risen from a median of $380,000 to $420,000 over the same period, the gap between what they can borrow and what they can buy has widened in both directions.
Fixed Rate or Variable Rate for Investment Properties
A fixed rate locks in your repayment amount for a set period, typically one to five years. A variable rate moves with the market. For investment properties, the choice depends on whether you value certainty over flexibility. A fixed rate protects you if rates rise further, but you'll pay break costs if you want to refinance, sell, or access equity before the fixed term ends. A variable rate gives you the option to make extra repayments, redraw funds, or refinance without penalty, which can matter if your circumstances or the property market shift.
In our experience, investors who plan to hold a property long-term and want stable repayments often split the loan, fixing part of the balance and leaving the rest variable. That way, they get some protection from rate rises without losing all flexibility.
Interest Only Repayments and Cash Flow Management
An interest-only period on an investment loan means you pay only the interest portion of the loan for a set period, usually one to five years. Your repayments are lower during that time, which can help with cash flow if rental income doesn't cover the full principal-and-interest repayment. Once the interest-only period ends, the loan reverts to principal and interest, and your repayments increase.
Interest-only repayments don't reduce the loan balance, so you're not building equity through repayments. You're relying on property value growth for that. If values flatten or fall, you're still carrying the full loan amount. Interest-only loans also attract higher risk weightings under the lending rules, which can mean a slightly higher interest rate or stricter serviceability assessment. If you're buying in Craigmore and rents in the area are sitting around $400 to $450 per week for a three-bedroom house, an interest-only structure might give you enough breathing room to hold the property through a period of lower occupancy or higher maintenance costs, but you need to plan for the repayment step-up when the interest-only term ends.
Loan to Value Ratio and Deposit Requirements for Investors
The loan to value ratio is the amount you borrow divided by the property's purchase price or valuation, whichever is lower. Most lenders cap investor loans at 90 per cent LVR, though some will go to 95 per cent in limited circumstances. The higher your LVR, the higher your risk weighting and the more likely you'll need to pay Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender if you default, and it's calculated on a sliding scale based on your loan amount and LVR. You can usually add the premium to your loan balance, but that increases the amount you're borrowing and the interest you'll pay over time.
If you're buying a $400,000 property in Craigmore with a 10 per cent deposit, your LVR is 90 per cent and you'll likely pay LMI. If you can increase your deposit to 20 per cent, your LVR drops to 80 per cent and you avoid the premium entirely. The other benefit of a lower LVR is a better interest rate. Lenders typically offer rate discounts to borrowers with an LVR of 80 per cent or below, because the loan carries less risk.
Negative Gearing and Tax Deductions Under Current Rules
Negative gearing means the costs of holding your investment property, including loan interest, exceed the rental income you receive. You can claim that loss against your other income, which reduces your taxable income and the amount of tax you pay. For properties held before mid-May, negative gearing continues to work the same way it always has. For established properties purchased after that date, losses can only be offset against other residential property income, not against wages or salary. Losses you can't use in the current year carry forward and can be used later.
If you're looking at properties in Craigmore now, the most relevant question is whether you're buying an established home or a new build. New builds retain full negative gearing regardless of when you buy. Established homes purchased after mid-May fall under the new rules. Either way, interest on your investment loan remains deductible, as do other holding costs like council rates, insurance, property management fees, and repairs.
Using Equity From Your Home to Fund a Deposit
If you own your home in Craigmore or nearby and you've built up equity, you can often use that equity as a deposit for an investment property without needing to sell or save additional cash. Equity is the difference between your property's current value and what you owe on it. Lenders will let you borrow against that equity, typically up to 80 per cent of your home's value without paying LMI.
A homeowner with a property valued at $500,000 and a remaining loan balance of $250,000 has $250,000 in equity. At 80 per cent LVR, they could access up to $150,000 of that equity to use as a deposit and cover costs on an investment property. The equity release is typically structured as a separate loan or an increase to your existing home loan, with the funds transferred at settlement. You'll need to service both loans, so your borrowing capacity will be assessed across the combined debt. Using equity means you're not tying up cash savings, which can be useful if you want to keep a buffer for other expenses or opportunities, but it does increase your overall debt position and the amount of interest you're paying.
Craigmore Property Market and Investor Demand
Craigmore sits in the northern suburbs of Adelaide, bordered by the Gawler Ranges to the north and connected to the city by Main North Road. The suburb has a mix of established homes from the 1980s and 1990s, along with newer estates that have brought younger families into the area. The local primary school, Craigmore South Primary, services much of the suburb, and the Munno Para Shopping City is less than ten minutes away. Rental demand is steady, driven by affordability and access to transport and schools. Vacancy rates in the northern suburbs have been sitting below the metropolitan average, which means rental properties in Craigmore are generally occupied without long gaps between tenants.
For investors, Craigmore offers a lower entry price than inner suburbs, which means a smaller deposit and lower borrowing amount. That can make the difference between qualifying for a loan or not, particularly if rates are high and your borrowing capacity is constrained. Rental yields in the area tend to be stronger than in more expensive suburbs, because purchase prices are lower while rents don't fall by the same proportion. A $400,000 property returning $420 per week in rent gives you a gross yield of around 5.5 per cent, compared to a $700,000 property in the inner south returning $550 per week, which works out closer to 4.1 per cent.
What Happens When Property Values Fall and Rates Stay High
When property values drop but interest rates remain elevated, borrowing capacity stays tight even though the asset is now cheaper. Lenders still test your application at the higher rate plus the buffer, so the amount you qualify for doesn't increase just because the property costs less. If you already own an investment property and values have fallen, your equity position weakens. That doesn't affect your current loan, but it limits your ability to refinance, access further equity, or expand your portfolio until values recover or you pay down more of the loan balance.
In a falling market, refinancing to a lower rate can still make sense if you're out of a fixed term and can reduce your repayments without triggering break costs. Lower repayments improve your cash flow and reduce the gap between rental income and loan costs, which matters if you're negatively geared. If you're looking to buy in a falling market, the lower purchase price might offset the reduced borrowing capacity, but you'll need a clear view of rental demand and holding costs to make sure the property still works financially.
Call one of our team or book an appointment at a time that works for you. We work with investors across Craigmore and the northern suburbs, and we can walk through investment loan options that match your deposit, income, and the property you're looking at.
Frequently Asked Questions
How do rising interest rates affect investment loan borrowing capacity?
Rising interest rates reduce borrowing capacity because lenders assess your ability to service the loan at the current rate plus a 3.0 percentage point buffer. A higher rate pushes the serviceability test higher, which lowers the amount you can borrow even if your income and deposit remain the same.
Should I choose a fixed or variable rate for an investment property loan?
A fixed rate gives you stable repayments for a set period but limits flexibility if you want to refinance, sell, or access equity early. A variable rate moves with the market but allows extra repayments and refinancing without penalty. Many investors split the loan to balance certainty and flexibility.
Can I still use negative gearing on an investment property in Craigmore?
Yes. Properties held before mid-May retain full negative gearing, and new builds purchased after that date also qualify. For established properties bought after mid-May, losses can only be offset against other residential property income, not against wages or salary.
What is the loan to value ratio and why does it matter for investment loans?
The loan to value ratio is the amount you borrow divided by the property's value. A lower LVR typically means a lower interest rate and no Lenders Mortgage Insurance. Most lenders cap investor loans at 90 per cent LVR, with better rates available at 80 per cent or below.
Can I use equity from my home to buy an investment property?
Yes. If you have equity in your existing home, you can often borrow against it up to 80 per cent of the property's value without paying Lenders Mortgage Insurance. The equity is typically released as a separate loan or an increase to your current loan, and you'll need to service both loans.
