How Much Can I Borrow for an Investment Property in Australia?

The serviceability formula

Every Australian lender uses some version of the same formula:

Net surplus = Eligible income − Living expenses − Existing debt servicing − New loan servicing (assessed at the buffer rate)

If your net surplus is positive at the buffer rate, the loan passes serviceability. The bigger the surplus, the higher the loan amount you can be approved for. The lender's role is to assess each input conservatively, not generously.

The APRA 3% buffer rule

Since 2021, APRA (the Australian Prudential Regulation Authority) has required lenders to assess loans at a minimum buffer of 3% above the actual interest rate. If your variable rate is 6.5%, the lender assesses your repayments at 9.5%. This is the single largest constraint on Australian borrowing capacity in 2026.

The buffer is not optional. It applies to all owner-occupier and investment loans, including refinances. Some non-bank lenders apply a slightly lower buffer (occasionally 2.5% with regulatory approval) but the major banks all maintain 3%+.

Practical implication: if rates fall, your borrowing capacity increases roughly 1.5x the rate cut, because both the actual rate and the buffer rate fall together. This is why borrowing capacity surged in 2020 and contracted sharply in 2022–23.

LVR (Loan-to-Value Ratio) explained

LVR is the loan amount divided by the property's value, expressed as a percentage. An $560,000 loan on a $700,000 property is 80% LVR.

• ≤80% LVR (20%+ deposit): standard pricing, no LMI, most lenders compete for your business.
• 80–90% LVR: LMI applies (typically 1.5–3% of loan amount), pricing slightly higher, some lenders restrict postcodes.
• 90–95% LVR: higher LMI (3–5% of loan), tightened credit policy, fewer lenders. Investment loans rarely go this high.
• >95% LVR: niche only — typically requires guarantor or a profession-specific scheme (medical, legal). Not generally available for investment.

What lenders count as income

Not all income is treated equally. Lenders apply "haircuts" to discount uncertain or volatile income:

• PAYG salary: 100% counted, with 2 recent payslips or NOA evidence.
• Bonus and commission: typically 80% averaged over 2 years; some lenders accept less or more depending on consistency.
• Overtime: 80% if essential service (police, fire, health), often less elsewhere; 2-year history usually required.
• Rental income (existing): 75–80% of gross rent (the haircut accounts for vacancy, management fees, maintenance).
• Rental income (new property): assessed on estimated weekly rent, also at 75–80%.
• Self-employed: typically 2 years of tax returns; add-backs allowed for depreciation, interest, one-off expenses. Lower-doc and alt-doc options exist for shorter trading history.
• Government benefits (Family Tax Benefit, Carer): 100% counted by some lenders, 0% by others — varies significantly.
• Investment dividends: 80% of trailing 2-year average, if consistent.

What hurts your borrowing capacity

Lenders subtract a notional servicing cost for every existing liability — not just current minimum repayments, but a stress-tested version. Common culprits:

• Credit card limits (not balances). A $20,000 limit you never use still reduces borrowing capacity by ~$80,000– $120,000 because lenders assess servicing on the full limit at ~3.8% per month.
• HECS/HELP debt. Treated as a percentage of taxable income (currently 1–10% depending on income band). Reduces assessable income directly.
• Personal loans, car loans. Full repayment counted until the loan term ends (some lenders look 12 months ahead).
• BNPL accounts. Increasingly treated as liabilities even when balances are zero — Afterpay, Zip, etc.
• Dependants. Each dependant adds ~$300–$500 to assessed monthly living expenses.
• Existing investment property loans. Counted with their full repayment plus the buffer; rental income offsets but doesn't fully neutralise.

Quick wins to lift borrowing capacity

• Reduce credit card limits. Drop unused limits to $1,000 or close cards entirely. Often adds $50,000–$200,000+ to capacity.
• Pay out personal/car loans. The repayment removal often outweighs the cash drain on deposit.
• Switch to fortnightly repayments on existing mortgages. Doesn't change capacity per se, but reduces assessed servicing costs at some lenders.
• Review HEM application. If your declared expenses are below HEM and you have a clean conduct history, some lenders will use declared expenses instead.
• Lender shopping (via broker). Borrowing capacity can vary $100,000–$250,000+ across lenders for the same applicant. A good broker maps which lender's policy quirks favour your situation.

The interest-only question

Interest-only (IO) loans were tightened by APRA in 2017 and remain subject to caps at most banks (no more than ~30% of new lending). For investors, IO can improve cashflow short-term and concentrate tax deductibility, but lenders typically assess the loan as if it were principal-and-interest over the remaining loan term — meaning a 5-year IO period on a 30-year loan is assessed as P&I over 25 years, which actually reduces borrowing capacity.

The decision to use IO is primarily a tax and cashflow question, not a borrowing-capacity one. Speak with a registered tax agent before electing IO — the right answer depends on your marginal tax rate, other deductions, and exit strategy.

Can I borrow more by adding a partner?

Joint borrowing combines incomes (both fully counted) but also combines liabilities (both fully counted). The net effect is usually positive: two PAYG incomes typically add more capacity than two sets of credit card limits subtract. Joint applications also broaden the policy fit at lender level.

However, all joint borrowers are jointly and severally liable for the entire debt — relationship considerations matter. Some couples choose to borrow in only one name to preserve borrowing capacity for the other to buy separately later, particularly when one partner is self-employed or has irregular income.