Investment property loans explained: deposits, rental income and lender assessment
An investment property loan is, mechanically, the same product as the loan on your own home: a mortgage secured against a property, repaid over a term. What changes is how lenders price it, how much they will lend against the property, and how they assess whether you can afford it — because the property's income and expenses now enter the calculation alongside your own. This guide explains the differences that actually matter, so the numbers a lender comes back with make sense before you start looking at properties. Our [investment loans page](/loans/investment-loans) covers how we help on the finance side.
How investment loans differ from owner-occupier loans
Lenders treat investment lending as a different risk category from owner-occupier lending, and it shows up in three places:
- Rates are typically a little higher. Most lenders price investment loans above their equivalent owner-occupier products, and interest-only repayments usually carry a further margin over principal and interest. The gap varies by lender and moves over time, so compare current offers rather than assuming.
- LVR caps are often stricter. Some lenders cap investment lending at a lower maximum loan-to-value ratio than owner-occupier loans, particularly for interest-only repayments or certain property types and postcodes.
- The assessment is more involved. Rental income, property expenses and your existing portfolio all enter the serviceability calculation, which means more documents and more moving parts than a simple owner-occupier application.
None of this makes investment lending harder to obtain for a well-prepared borrower — it just means the settings differ, and they differ between lenders more than most people expect.
Deposits and equity: what you actually need
A 20 per cent deposit plus purchase costs is the common benchmark, because at 80 per cent LVR most lenders do not require lenders mortgage insurance (LMI). Some lenders will accept smaller deposits on investment purchases with LMI added, though maximum LVRs for investment lending are often lower than the owner-occupier equivalent, and LMI premiums rise quickly as the LVR climbs. You can see how deposit size, LVR and LMI interact with our [LVR and LMI calculator](/calculators/lvr-lmi).
The deposit does not have to be cash. Many investors fund it from equity in a property they already own — typically by borrowing up to 80 per cent of that property's value, less the current loan. If that is your plan, our guide to [using equity to buy an investment property](/articles/investment-loans/using-equity-to-buy-investment-property) walks through the structures and the traps.
How lenders treat rental income
Rental income counts towards your borrowing power, but never at face value. In general terms:
- Rental income is shaded, commonly to around 75 to 80 per cent of the gross rent, to allow for vacancies, agent fees, maintenance and other holding costs. Some lenders shade certain property types more heavily.
- Evidence is required. For a property you already own, that usually means a current lease or recent rental statements. For the property you are buying, lenders typically rely on a rental appraisal from an agent or the valuer's estimate of market rent.
- The expenses count too. Council rates, strata levies, insurance and the repayments on the investment loan itself all sit on the outgoings side of the assessment — the rent is not free money in the lender's eyes.
Because shading percentages and evidence rules differ by lender, the same property can add materially different amounts to your borrowing power depending on where you apply.
A 15-minute chat is usually enough to map your options — free, no obligation.
The serviceability assessment
Like any regulated loan, an investment loan is assessed under responsible lending obligations: the lender tests whether you can afford the repayments with room to spare. Two features matter most for investors:
- The buffer. Lenders typically assess repayments at around 3 percentage points above the actual rate — on the new loan and on your existing loans. Across a home loan plus one or more investment loans, the buffer compounds, which is the main reason borrowing power runs out sooner than investors expect.
- The whole portfolio is on the table. Every existing property's loan repayments, rates, insurance and body corporate fees are counted, while its rent is shaded. A portfolio that is comfortably cash-flow positive at real-world rates can still assess as negative under buffered rates.
Our [borrowing capacity calculator](/calculators/borrowing-capacity) gives you a starting estimate, and our guide to [how banks assess serviceability](/articles/home-loans/how-banks-assess-serviceability) explains the machinery in detail.
Portfolio and exposure limits
As a portfolio grows, two ceilings appear that first-time investors rarely see coming. The first is the serviceability ceiling described above — shaded rents and buffered repayments eventually cap what any lender will extend. The second is exposure policy: many lenders limit their total lending to one borrower or group, and some restrict the number of properties or total exposure they will hold in a single postcode, building or property type. Investors with several properties often end up spreading loans across lenders for this reason, and the order in which you use lenders can affect how far the portfolio can go. This is genuinely a strategy question, and one where broker experience across many lender policies earns its keep.
Choosing the loan structure
Structure decisions are worth making deliberately rather than by default:
- Principal and interest or interest-only. Interest-only repayments improve near-term cash flow but cost more over the life of the loan and can reduce borrowing power — our guide to [interest-only investment loans](/articles/investment-loans/interest-only-investment-loans) covers the trade-offs.
- Stand-alone or cross-collateralised. Keeping each property secured by its own loan generally preserves flexibility; tying multiple properties to one facility can complicate future sales and refinances.
- Offset and redraw. An offset account against the right loan can help manage cash flow while keeping loan purposes clean — which matters at tax time. How you structure borrowings can have tax consequences, so involve your accountant before settling on a structure.
Talk it through with a broker
Investment lending rewards preparation: the right lender, the right structure and realistic numbers before you bid, not after. We can compare how different lenders would assess your income, rent and existing loans, and map out what your next purchase realistically looks like. [Start an application](/apply) or get in touch for a no-obligation chat.
This article is general information only and does not consider your objectives, financial situation or needs. It is not financial, credit or tax advice — speak to a qualified adviser about your circumstances.
Frequently asked questions
Do investment property loans have higher interest rates?
Typically, yes. Most Australian lenders price investment loans somewhat above their owner-occupier equivalents, and interest-only repayments usually carry a further margin. The size of the gap varies by lender and changes over time, so it pays to compare current offers rather than assume the difference is fixed.
How much deposit do I need for an investment property?
A 20 per cent deposit plus purchase costs is the common benchmark, because at 80 per cent LVR most lenders do not require LMI. Some lenders accept smaller deposits with LMI, though investment LVR caps are often stricter than owner-occupier ones. Many investors fund the deposit from equity in an existing property instead of cash.
How do lenders count rental income?
Lenders shade rental income — commonly to around 75 to 80 per cent of gross rent — to allow for vacancies and holding costs, and they require evidence such as a lease, rental statements or a rental appraisal. The property's expenses and loan repayments are counted in full on the other side of the ledger.
Why is my borrowing power lower for a second property than my first?
Because your existing loan is assessed at a buffered rate — typically around 3 percentage points above the actual rate — while your existing rent is shaded. Each additional property adds buffered repayments and shaded income, so capacity erodes faster than the real-world cash flow suggests.
Can I use equity instead of a cash deposit?
Yes, this is common. Lenders will generally let you borrow against an existing property up to around 80 per cent of its value, less the current loan, and use the released funds as the deposit and costs for the new purchase. Keeping the equity release as a separate loan, rather than cross-collateralising, is the structure many borrowers and brokers prefer.