Property investment in Victoria has become more complex following the Federal Budget changes announced in May 2026.
The combination of tighter lending criteria, policy shifts around negative gearing and capital gains, and rising costs means investors now face a more demanding approval process than owner-occupiers. Understanding these challenges before you apply puts you in a position to address them proactively rather than react to setbacks during assessment.
Deposit Requirements Are Higher for Investment Properties
Lenders typically require a minimum 10% to 20% deposit for an investment property, compared to as little as 5% for owner-occupiers. Borrowers with less than 20% equity also pay Lenders Mortgage Insurance, which adds to upfront costs. This deposit barrier stops many potential investors before they even lodge an application.
Consider a buyer looking to purchase a rental property who has built up equity in their owner-occupied home. Rather than saving a new cash deposit, they can access that equity through refinancing and use it as a deposit for the investment loan. The lender assesses the combined loan-to-value ratio across both properties, but the buyer avoids waiting years to accumulate savings. In one scenario, a client with around 60% equity in their home secured an additional property without touching their offset account, preserving cash flow for renovations and holding costs.
Borrowing Capacity Is Assessed More Conservatively
Lenders apply a rental income haircut when calculating how much you can borrow. They typically assess only 70% to 80% of projected rental income, accounting for vacancy periods and maintenance costs. This reduction can shrink your borrowing capacity significantly compared to what the same income level would support if it came from a salary.
Your existing debts, credit card limits, and personal expenses are also scrutinised more closely. Even an unused credit card with a high limit can reduce your borrowing power by tens of thousands of dollars because lenders assume you could draw on that limit at any time. Paying down debts and closing unused accounts before applying can make the difference between approval and rejection.
The Policy Landscape Changed in May 2026
From 1 July 2027, losses on established residential properties purchased after 12 May 2026 can only be offset against rental income or capital gains from residential property, not against wage income. This removes a significant part of the appeal for negatively geared investments in the established market. Additionally, the 50% capital gains discount will be replaced with an inflation-indexed model and a minimum 30% tax on gains for properties acquired after Budget night.
These changes do not apply to new builds or to properties purchased before 13 May 2026. Investors now weigh whether to target newly constructed dwellings, which retain full negative gearing and a choice between the old or new capital gains treatment, or accept the revised tax position on established stock. The decision affects both the property type you target and the structure of your finance.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Zero Mondays today.
Interest Rates and Loan Structures Differ from Owner-Occupied Products
Investment property rates typically sit 0.20% to 0.50% higher than equivalent owner-occupied rates. Lenders price this difference into their products because they view rental properties as higher risk. The gap can mean thousands of dollars in additional repayments over the life of the loan, so comparing lender pricing becomes essential.
Many investors choose interest-only repayments for the first few years to reduce monthly outgoings and maximise deductions. After the interest-only period ends, the loan reverts to principal and interest, which increases repayments substantially. Structuring the loan term and repayment type to match your cash flow and tax strategy requires planning before you sign the loan documents.
Lenders Apply Different Serviceability Buffers
When assessing whether you can afford the repayments, lenders add a buffer of around 3% to the current interest rate. For investment loans, some lenders apply an even larger buffer or assess the loan at a higher floor rate. This means you need to prove you can service the loan at a rate well above what you will actually pay.
If you hold multiple properties or investment debts, the cumulative effect of these buffers can prevent you from borrowing further even if your actual cash flow is comfortable. Lenders who apply more flexible serviceability policies may approve the same application that another lender declines, which is why broker access to a wide panel matters.
Rental Income Documentation Must Be Robust
If you are refinancing an existing rental property or using projected rental income to support borrowing capacity, lenders require evidence. For an existing tenancy, this includes a signed lease agreement and bank statements showing rental payments. For a property not yet tenanted, lenders accept a rental appraisal from a licensed agent, but the appraisal must be recent and specific to the property.
Weak or outdated documentation can delay settlement or lead to a lower assessed income figure, which reduces how much you can borrow. Organising these documents before lodging the application keeps the process moving and avoids last-minute requests from the lender.
Strata and Body Corporate Issues Can Block Approval
Lenders assess the financial health of the owners corporation when you purchase an apartment or unit. A building with inadequate sinking fund reserves, ongoing legal disputes, or a high percentage of investor ownership may be declined by some lenders. Certain lenders also have postcode restrictions or avoid buildings with combustible cladding, defects, or incomplete rectification works.
Before committing to a contract, request a copy of the strata report and owners corporation financial statements. If red flags appear, a broker can identify which lenders will still consider the property or suggest alternative options before you pay for a building inspection or conveyancer.
Tax Structure and Entity Choice Affect Loan Options
Some investors purchase property in a family trust, company, or self-managed super fund to manage tax and estate planning. Lenders treat these structures differently. Trust and company borrowers often face higher rates, lower loan-to-value ratios, and stricter income verification. SMSF loans operate under limited recourse rules, which means only the super fund's assets are at risk if the loan defaults, but lenders charge a premium for this additional complexity.
If you are considering a non-individual ownership structure, speak to an accountant and broker together. The entity that delivers the most favourable tax outcome may not align with the lender that offers the most competitive rate or loan terms, so you need to balance both.
Holding Costs Accumulate While the Property Settles
From the day you exchange contracts, you are responsible for council rates, water charges, strata fees, insurance, and interest on any deposit bond or bridging finance. If the property is vacant during settlement or requires renovation before it can be tenanted, these costs run for weeks or months without offsetting rental income.
Investors often underestimate the cash required to cover this period. Lenders do not always allow you to capitalise these costs into the loan, so you need accessible savings or a redraw facility on another loan to bridge the gap. Including holding costs in your upfront budget prevents cash flow strain and ensures you can meet all obligations without relying on immediate rental income.
Refinancing an Investment Property Involves a Full Reassessment
When you refinance an investment property, lenders reassess your borrowing capacity using current serviceability rules, even if your original loan was approved years ago under different criteria. If your income has decreased, your expenses have risen, or lending policy has tightened, you may not be able to borrow the same amount you currently owe.
This becomes a challenge if you want to access equity for a second purchase or consolidate debts. Some investors find they are locked into their existing lender because no other lender will refinance the full balance. Maintaining strong serviceability across your portfolio, keeping debts low, and reviewing your loan structure regularly helps you retain flexibility when you need it.
Call one of our team or book an appointment at a time that works for you. We assess your situation across multiple lenders, structure the loan to match your investment strategy, and handle the application process so you can focus on finding the right property.
Frequently Asked Questions
What deposit do I need for an investment property?
Lenders typically require a minimum 10% to 20% deposit for an investment property. Borrowers with less than 20% equity also pay Lenders Mortgage Insurance, which increases upfront costs.
How do lenders assess rental income for borrowing capacity?
Lenders apply a haircut of 70% to 80% to projected rental income to account for vacancy periods and maintenance costs. This reduces your borrowing capacity compared to equivalent wage income.
Do negative gearing rules still apply to investment properties?
From 1 July 2027, losses on established properties purchased after 12 May 2026 can only be offset against rental income or property capital gains, not wage income. New builds retain full negative gearing benefits.
Can I use equity from my home as a deposit for an investment property?
Yes, you can access equity in your owner-occupied home through refinancing and use it as a deposit for an investment property. Lenders assess the combined loan-to-value ratio across both properties.
Why are investment loan interest rates higher than home loan rates?
Lenders view investment properties as higher risk, so they price investment loan rates 0.20% to 0.50% higher than equivalent owner-occupied rates. This can add thousands of dollars in repayments over the loan term.
