How borrowing capacity works for investment property in Australia

Borrowing capacity for investment property in Australia is calculated using your personal income, expected rental income (usually assessed at 80 percent of market rent), your existing debts and commitments, your living expenses, and a mandatory 3 percent serviceability buffer above the actual interest rate. Investment lending is stricter than owner-occupied lending, and different lenders treat the same applicant differently, which means the gap between the strictest and most flexible lender for you can easily be $150,000 to $300,000. A mortgage broker who works with investors can identify the lender whose policies best fit your situation, which often makes the difference between an approval that works and one that doesn't.

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This post is part of the Investing in property as an Australian woman guide. If you want the broader picture, start there.

Borrowing capacity is one of the most misunderstood parts of investment property lending. Most people either overestimate what they can borrow (based on stories from friends who invested five years ago in a different lending environment) or underestimate it (based on one bank calculator that used the strictest possible assumptions).

The reality sits in between, and it's not as opaque as it looks.

Here's how the numbers actually work.

What income can I use for an investment property loan?

Lenders use two main income sources for investment property calculations:

1. Your personal income. Salary, wages, self-employed income, and other regular income you can evidence. This is the same income lenders would use for an owner-occupied loan.

2. Expected rental income from the investment property. This is usually assessed at 70 to 80 percent of the market rent (not 100 percent), to allow for vacancy periods, property management fees, and unexpected costs. Different lenders use different assessment percentages.

If you already own other investment properties, the rental income from those properties can also count, again usually at 70 to 80 percent of market rent.

Government benefits (Family Tax Benefit, Parenting Payment) can also be counted by some lenders, though treatment varies significantly. If your income structure includes government support, lender choice matters.

What debts and expenses are counted against me?

Lenders assess your existing commitments as reductions in your borrowing capacity. Common ones:

• Existing home loans (both owner-occupied and other investment properties, if any)
• Credit card limits. The limit, not the balance. A $10,000 credit card counts as a $10,000 potential debt, even if the balance is zero
• Personal loans and car loans
• HECS/HELP debt. Repayments are calculated based on your income and reduce serviceability
• Buy-now-pay-later accounts. Increasingly counted by lenders
• Child support payments (if you're paying them)
• Existing living expenses, assessed against your bank statements or the Household Expenditure Measure (HEM), whichever is higher

Lenders will not just believe the living expense figure you give them. They cross-check against your bank statements and use benchmarks. Underestimating your expenses on an application is a common mistake and doesn't work.

What is the serviceability buffer, and why does it matter?

Australian lenders are required by APRA (the prudential regulator) to assess loan applications at 3 percent above the actual interest rate. This is called the serviceability buffer or the stress test.

The purpose is to check that you can still afford repayments if interest rates rise significantly. In practice, this means:

• If the actual investment loan rate is 6.5 percent, your borrowing capacity is calculated as if the rate were 9.5 percent
• Your borrowing capacity is significantly lower than a straight calculation of "income minus expenses divided by monthly repayment" would suggest
• Rate movements affect not just what you'll pay, but how much you can borrow at all

The buffer applies to all your debts, not just the new loan. If you have existing debts, they're also assessed at 3 percent above their actual rates.

The 3 percent buffer has been in place since 2021. Before that, it was 2.5 percent. It's possible it could change again in future, though there's no current indication it will.

Why do different lenders give me different borrowing capacity?

Every lender has its own serviceability calculator, using slightly different assumptions on:

• How much of your rental income to count (70 to 80 percent varies)
• How to treat casual, contract, or self-employed income
• How to assess HECS repayments
• How to handle Family Tax Benefit and other government benefits
• What living expenses figure to apply
• How to treat existing debts and credit card limits
• How to treat investment property tax deductions in their calculation (some add back tax deductions, some don't)

The result is that the same applicant can get significantly different borrowing capacity numbers from different lenders. For an experienced investor with multiple properties, the difference between the strictest and most flexible lender can easily be $200,000 to $500,000 or more.

For a first-time investor with a simple income structure, the difference is usually smaller but still meaningful.

What can I do to improve my borrowing capacity?

Several things, most of which take some time:

Reduce credit card limits. The most immediate lever. Cancel cards you don't use, or reduce limits on cards you do use. A $10,000 limit reduces borrowing capacity by significantly more than $10,000.

Pay out or reduce small consumer debts. Personal loans, car loans, and buy-now-pay-later accounts eat into serviceability. Paying these out often lifts borrowing capacity by more than the debt amount.

Increase rental estimates on existing investments. If you own other investment properties and the current rent is below market, review it. Higher rent means higher counted income.

Extend loan terms. Moving from a 25-year to a 30-year term (or beyond) reduces monthly repayments and lifts borrowing capacity, though total interest paid over the life of the loan increases.

Consider interest-only structures. Interest-only loans have lower monthly repayments than principal-and-interest loans. Some lenders will assess your borrowing capacity based on interest-only repayments, which can lift capacity. APRA has tightened interest-only lending significantly since 2017, so availability varies.

Address HECS/HELP debt. Consider whether paying HECS out (if you can) would help borrowing capacity more than keeping the funds available. Depends on your specific numbers.

Choose the right lender. The single biggest lever for many borrowers. The right lender for your situation can produce a very different borrowing capacity result than the wrong one.

What if my borrowing capacity isn't enough for the property I want?

Common options:

• Buy a different property that fits your capacity. Not always what you want to hear, but often the right answer
• Buy jointly with a partner, family member, or investment partner (has significant legal and tax implications, get advice)
• Save a larger deposit to reduce the loan size required
• Use equity from an existing property to fund a larger deposit
• Consider rentvesting if the target investment location is more affordable than where you want to live
• Wait if your income is on a clear growth trajectory or you're paying down existing debts

Each of these has trade-offs. A broker and, where relevant, a property strategist can walk you through which combination makes the most sense.

Frequently asked questions

How much of my rental income will lenders count?

Most Australian lenders count 70 to 80 percent of expected market rent, not 100 percent. The reduction accounts for vacancy periods, property management fees, and unexpected costs. Different lenders use different percentages, so this is one of the areas where lender choice matters.

Do investment property tax deductions help my borrowing capacity?

Some lenders will add back tax deductions like depreciation and negative gearing in their serviceability calculations, effectively counting them as income. Others don't. This is one of the biggest variables between lenders and can significantly affect the borrowing capacity outcome. A broker who works with investors will know which lenders' policies produce the best result for your situation.

Can I use rental income before I've had a tenant in the property?

Yes. Lenders assess based on expected market rent (usually supported by a rental estimate from a real estate agent), not actual rent already received. You don't need to already have a tenant in place before applying.

How does having children affect my investment property borrowing capacity?

Children are treated as dependants in serviceability calculations, which increases the assumed living expenses lenders use. This reduces borrowing capacity compared to someone without dependants. Different lenders use different amounts per dependant. The impact is real but manageable, and it doesn't stop parents from investing.

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This article is general information only and does not constitute financial, legal or tax advice. Please speak to a licensed financial adviser, solicitor and your accountant about your specific circumstances.

Rielle Berglund is a mortgage broker and the founder of Matilda Tree Finance. She works with Australian women navigating major financial transitions, including separation, divorce, terminal illness and bereavement. She is also the creator of Runa, a free financial literacy app built for exactly this stage of life.

Book a confidential conversation with Rielle at matildatreefinance.com.au or start with Runa, free, at runaapp.com.au.

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You may also find these helpful

• Investing in property as an Australian woman: a clear starting point
• Using your equity to buy an investment property: how it works
• Rentvesting vs buying your first home: which is right for you?

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Sources and references

This article draws on Rielle Berglund's professional experience as a mortgage broker. The following sources are relevant to topics covered:

• APRA macroprudential guidance (3% serviceability buffer): apra.gov.au/macroprudential
• ASIC Moneysmart on home loans: moneysmart.gov.au/home-loans