Proven tips to secure your first investment property loan

What lenders assess when you apply for your first investment loan

Lenders treat investment property finance differently from an owner-occupier home loan because the risk profile is higher.

Consider a buyer who already owns their home and wants to purchase a rental property in Geelong. The lender will assess their ability to service both loans, apply a rental income discount of around 20 per cent to account for vacancy and maintenance, and add a serviceability buffer of 3.0 percentage points above the actual interest rate. That means even if the investment loan rate is 6.5 per cent, the lender tests whether the borrower can afford repayments at 9.5 per cent. Rental income from the new property is included in serviceability calculations, but it's discounted. If the property is expected to generate $650 per week, the lender will only credit around $520 of that in their assessment. The remaining portion is assumed to cover periods when the property sits vacant, routine repairs, and other holding costs that eat into cashflow.

From February this year, lenders have also been required to limit high debt-to-income lending. Under the current rules, no more than 20 per cent of new investment loans can go to borrowers with a total debt-to-income ratio of six times or greater. If your combined home and investment borrowing sits at seven times your gross household income, you'll fall into a category where the lender's available capacity is capped. That doesn't make approval impossible, but it does narrow your options.

How much deposit you'll need and where it can come from

Most lenders require a minimum 10 per cent deposit for an investment property, though some will lend at higher loan-to-value ratios if you're willing to pay Lenders Mortgage Insurance.

If you're purchasing a house at the current Geelong metro median, a 10 per cent deposit would be around $108,000. At 20 per cent, which avoids LMI, you're looking at closer to $216,000. Those figures don't include stamp duty, conveyancing, building and pest inspections, or any property management setup costs. Stamp duty in Victoria on a property at that price point adds another layer of upfront capital you'll need to account for.

Equity in your existing home is one of the most common deposit sources. If you purchased in the Bellarine Peninsula three or four years ago and values have increased, a lender may allow you to leverage equity by refinancing your current loan and using the released funds as a deposit on the investment property. The total borrowing across both properties still needs to meet serviceability rules, and you'll want to ensure you're not overstretching. Rental income helps, but it won't cover the full gap if your household income is already committed elsewhere.

Interest-only versus principal and interest loan structures

An interest-only investment loan reduces your monthly repayment because you're not paying down the principal during the interest-only period.

For a borrower holding a $900,000 investment loan at current variable rates, switching from principal and interest to interest-only might reduce the monthly repayment by around $1,800. That difference improves short-term cashflow and, because interest on an investment loan is tax-deductible, the entire repayment during the interest-only period can be claimed. Principal repayments are not deductible. The trade-off is that you're not building equity in the property through loan reduction, and when the interest-only period ends, the loan reverts to principal and interest with higher repayments than if you'd been paying down the loan from the start.

Interest-only periods are typically capped at five years on investment loans. If the loan-to-value ratio is above 80 per cent and the interest-only term isn't specified or exceeds five years, the loan is classified as non-standard under the current prudential framework, which increases the lender's capital cost and usually results in a higher interest rate or outright decline. Some lenders offer the option to extend interest-only beyond five years at lower LVRs, but those products are less common and tend to come with rate premiums.

Variable or fixed rate investment loans in the current cycle

Every investment loan application needs a rate structure decision, and right now that decision is harder than it was two years ago.

Variable rates give you flexibility to make extra repayments, access offset accounts, and refinance without break costs if a stronger loan product appears or your circumstances change. Fixed rates lock in your repayment for a set term, which provides budgeting certainty but removes flexibility. If you fix for three years and want to sell the property or refinance in year two, you may face break costs that wipe out any benefit the fixed rate delivered. The major banks are currently forecasting at least one more rate rise before the end of the year, with the first cut not expected until mid-2027. That outlook makes fixed rates more attractive to some investors, but it also reflects expectations already priced into fixed loan offers. You're not beating the market by fixing - you're buying certainty at the price the lender sets today.

A split loan structure lets you fix part of the borrowing and keep the rest variable. For instance, fixing 50 per cent of a $900,000 loan gives you partial rate protection while keeping $450,000 on variable terms where you can use an offset account or make lump sum reductions. That approach suits buyers who want some protection from rate rises but don't want to lock themselves in completely. It's worth comparing the rate differential between fixed and variable carefully, because if the fixed rate is more than 0.5 percentage points above the variable rate, the protection comes at a measurable cost.

Tax treatment and the legislative changes that apply from July next year

Negative gearing allows you to offset investment property losses against your other income, including salary, but the rules changed in May last year and the impact starts from the 2027-28 income year.

If you settle on an established investment property after 7:30pm on 12 May last year, any loss you make on that property from 1 July next year can only be offset against income from other residential properties, including capital gains when you sell. You can't claim those losses against your salary anymore. Losses carry forward, so if you make a $15,000 loss in the 2027-28 year and have no other property income to offset it against, that loss sits in your tax return and can be used in a future year when you do have assessable property income. Properties you already owned before that date, or those under contract at the time, are grandfathered. Newly built properties are also exempt - if you buy a new dwelling that meets the eligibility criteria, the old negative gearing rules continue to apply and you can claim losses against all income.

Interest on your investment loan, council rates, insurance, property management fees, and depreciation all remain deductible for the period the property is rented or genuinely available for rent. The question is just what income you can offset them against. This doesn't change the fundamentals of whether an investment property works financially, but it does change the after-tax position for anyone buying an established property who was relying on salary offset to manage cashflow in the early years. Speak to your accountant before you settle, not after.

How rental income affects your borrowing capacity and cashflow

Rental income is included in your borrowing capacity assessment, but lenders apply a shading factor to account for the reality that rental properties don't generate income every week of the year.

A property that achieves $650 per week in a tight rental market like Geelong, where the vacancy rate sat at 0.9 per cent in July this year, will still be assessed by the lender as though it generates closer to $520 per week. The 20 per cent reduction covers vacancy periods, tenant turnover, maintenance windows, and the risk that the property sits empty while you're between leases. The tighter the rental market, the shorter those gaps tend to be, but lenders don't adjust their shading factor to reflect local conditions. The discount is applied nationally and doesn't shift with quarterly vacancy data.

For a borrower earning $120,000 a year with an existing $600,000 home loan and looking to borrow another $900,000 for an investment property, that $520 per week in shaded rental income adds roughly $27,000 to their assessed annual income. Without it, the application wouldn't meet serviceability benchmarks under current lending policy. The actual rent you collect matters for cashflow and tax, but it's the shaded figure that determines how much you can borrow.

Choosing the right property and location for your first investment

Your first investment property doesn't need to be in the same area where you live, but it does need to meet the criteria lenders and tenants both care about.

Lenders prefer properties in established suburbs with reliable transaction history and strong rental demand. A three-bedroom house in a suburb close to Geelong with a consistent vacancy rate below 2 per cent and a demonstrated rental yield above 3.5 per cent will generally be viewed more favourably than a property in a regional town with thin transaction volumes and uncertain tenant demand. Tenants care about proximity to work, schools, public transport, and amenities. A property that ticks those boxes will rent faster and hold tenants longer, which directly affects your cashflow and reduces the periods where you're covering the full loan repayment out of your own pocket.

Units can deliver higher rental yields than houses, but they come with body corporate fees that reduce your net return and aren't always fully deductible depending on what the fees cover. If you're comparing a unit at $600,000 with a 4.5 per cent gross yield against a house at $900,000 with a 3.8 per cent yield, factor in the $4,000 to $6,000 annual body corporate cost on the unit and check what's included. Some body corporate arrangements cover building insurance and sinking fund contributions that you'd pay separately on a house. Others are largely administrative and deliver less value.

The decision between an established property and a new build has tax implications now under the updated negative gearing rules. A newly constructed dwelling lets you claim the full depreciation schedule, access the existing negative gearing treatment, and potentially benefit from a longer depreciation runway than an established home. The trade-off is that new properties often carry a price premium and can take time to achieve the same capital growth trajectory as established stock in tightly held suburbs. There's no universal right answer - it depends on whether your priority is tax efficiency, capital growth, or immediate cashflow.

Call one of our team or book an appointment at a time that works for you. We'll walk through your current position, work out what you can borrow, and help you compare investment loan options from lenders across Australia.

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