How much can I borrow for an investment property?

Before you look at a single suburb or house and land package, you need one number: what a lender will actually give you. Everything else flows from that. This guide walks through how lenders work it out, what deposit you realistically need, and why the process looks different if you run your own ABN, as many of our clients do.

How do lenders calculate borrowing power?

Lenders start with your gross income, subtract tax, existing loan repayments, credit limits and assessed living expenses, then check what is left can cover the new loan at a buffered interest rate. That buffered test, called serviceability, is usually the binding constraint, more so than your deposit.

The mechanics are fairly consistent across lenders, even though the results vary. First they add up your income: salary or wages, overtime and allowances (often only partly counted), business income if you are self-employed, and a shaded portion of the rent from the property you are buying. Then they subtract commitments: repayments on your home loan, car loans, personal loans, HECS or HELP, and your declared living expenses, which they benchmark against household spending data and will not accept below a floor.

Credit cards deserve a special mention. Lenders assess you on the card limit, not the balance. A card with a $20,000 limit and a zero balance still counts as if you could max it out tomorrow. Cutting limits before you apply is one of the easiest wins available.

The last step is the serviceability buffer. Regulators require lenders to test your repayments at a rate several percentage points above the actual rate on offer. So even if the advertised repayment looks comfortable, the lender is asking a harder question: could you still pay this if rates rose materially? If the answer at the buffered rate is no, the loan size comes down until it is yes.

A worked example, purely hypothetical. Say you earn $110,000, have a $15,000 car loan, one credit card with a $10,000 limit, and you are buying a property expected to rent for $600 a week. The lender might count around $480 of that weekly rent, add it to your income, subtract your commitments and benchmarked living costs, then solve for the largest loan the remainder supports at the buffered rate. Change any one input, close the card, pay out the car, buy a property with stronger rent, and the answer moves.

What deposit do I need for an investment property?

Most investors buy with a deposit between 10 and 20 per cent of the purchase price, plus purchase costs such as stamp duty and legals. Below 20 per cent you will usually pay lenders mortgage insurance. Many investors avoid a cash deposit entirely by using equity in a home they already own.

Twenty per cent is the clean number. At that level you avoid lenders mortgage insurance (LMI), a one-off premium that protects the lender, not you, if you default. LMI is not automatically a bad deal for investors. Paying it can get you into the market years earlier with a smaller deposit, and time in the market often matters more than the premium. It is a trade-off to run the numbers on, not a rule to obey.

Do not forget costs on top of the deposit. Budget for stamp duty (which varies by state and is generally higher for investors than owner-occupiers in some states), conveyancing, building and pest or independent inspections, and loan setup fees. On a new house and land package, stamp duty is often payable on the land component only, because the house does not exist yet at contract. That can meaningfully reduce upfront costs compared with buying established, though the exact treatment depends on the contract structure and the state.

The equity route works like this. Say your home is worth $750,000 and your loan is $450,000. A lender may let you borrow up to 80 per cent of the value, which is $600,000, leaving $150,000 of usable equity. That $150,000 can fund the deposit and costs on an investment purchase without you saving a dollar of new cash. The catch is that you are now servicing more debt, so the equity solves the deposit problem while making the serviceability test harder. Both hurdles have to clear.

How is borrowing power different if I am self-employed?

Lenders assess self-employed applicants on taxable income shown in tax returns, usually averaged over two years. Deductions that lower your tax bill also lower your borrowing power. The income is the same, but proving it takes more paperwork and the timing of your applications matters far more.

This is where a lot of tradies and small business owners get caught. Your accountant's job has been to legally minimise your taxable income. The lender's job is to lend against your taxable income. Those two goals pull in opposite directions. If your business genuinely turned over well but your returns show $55,000 after every deduction available, most lenders will treat you as a $55,000 earner.

The standard evidence is two years of personal and business tax returns plus the matching notices of assessment. Lenders commonly average the two years, or take the lower year if income fell. Some add back non-cash deductions such as depreciation, and one-off expenses, which can lift your assessable income above the raw taxable figure. Which add-backs a lender accepts varies a lot, and this is where a broker who knows the self-employed policies of each lender earns their fee.

If you have been trading under your own ABN for less than two years, options narrow but do not disappear. Some lenders accept one year of returns, especially if you were previously employed in the same trade on similar income. Low-doc loans, where you verify income through business activity statements or an accountant's declaration, exist as a fallback, typically at higher rates and lower loan-to-value limits.

The practical takeaway: if an investment purchase is on your horizon, talk to your accountant and broker before you finalise your next tax return, not after. A year of aggressive deductions immediately before an application can push your purchase back by a full financial year.

How can I increase my borrowing power?

The fastest levers are cutting credit card limits, clearing small debts, tidying your spending in the months before applying, and choosing a property with solid rental income. Self-employed borrowers can also review deductions with their accountant. Comparing lenders matters too, because assessed borrowing power differs widely between them.

Start with the debts a lender counts against you. Cancel cards you do not use and reduce limits on the ones you keep. Pay out small personal loans and buy-now-pay-later balances; they are small in dollars but noisy on an application. If you have a HECS or HELP balance close to being cleared, ask whether paying it out changes your numbers, because the repayment percentage comes straight off your income in the assessment.

Next, your spending. Lenders read three to six months of statements. Regular gambling transactions, frequent overdrawn fees and a pattern of spending everything you earn all read badly. You do not need to live on rice for half a year, but a few months of visible surplus makes the living expense conversation easier.

Then the property itself. Because most lenders count a large share of expected rent as income, a property renting at $620 a week supports a bigger loan than one renting at $480, all else equal. This is one reason yield matters even to growth-focused investors: rent is not only cash flow, it is borrowing capacity for the next purchase.

Finally, shop the assessment as well as the rate. Lenders differ in how they treat overtime, bonuses, rental shading, self-employed add-backs and living expense floors. The same application can produce loan limits tens of thousands of dollars apart at different lenders. A broker can run your scenario across a panel before anything hits your credit file.

One caution to close on. The maximum a lender will give you and the amount you should borrow are different numbers. A good investment plan leaves a buffer for vacancy, repairs and rate movements. Borrowing to the absolute ceiling leaves no room for the year that does not go to plan.

This is general information, not financial or credit advice. Your situation is unique; speak to a licensed adviser or broker before acting.