What the Data Says About Property Investors Right Now
I pulled the latest ABS Lending Indicators for the December Quarter 2025 this morning, and investor lending is surging. The value of new investor home loan commitments hit $11.7 billion in December alone - up 24.1% year-on-year. That's the strongest growth rate of any borrower segment.
There's a reason for this. Rental yields have been climbing. The national average gross rental yield sits at 4.1% as of February 2026 according to CoreLogic data, and in some regional areas it's pushing past 6%. Combined with stabilising interest rates and strong population growth driving rental demand, the fundamentals for property investment are solid.
But here's what the data doesn't tell you: investment property lending is more complex than owner-occupier lending. The rates are higher, the LVR requirements are tighter, and the way lenders assess your borrowing power is fundamentally different. I see investors make expensive mistakes every week because they assumed the rules were the same. They're not.
Investor vs Owner-Occupier Lending: The Key Differences
If you already own your home with a mortgage, you might think getting an investment loan is the same process. It isn't. APRA (the Australian Prudential Regulation Authority) requires lenders to treat investment lending differently, and those differences hit your hip pocket.
Higher interest rates
Investment property loans carry a rate premium of 0.25% to 0.60% compared to owner-occupier loans. On a $500,000 loan, that's $75-$250 per month more in repayments. The premium exists because APRA considers investment lending higher risk - investors are more likely to default during a downturn because they'll protect their family home first.
Lower maximum LVR
While owner-occupiers can borrow up to 95% (and even 98% with Help to Buy), most lenders cap investor LVR at 80-90%. Borrowing above 80% LVR as an investor means LMI, and investor LMI premiums are significantly higher than owner-occupier premiums. On a $600,000 loan at 90% LVR, investor LMI can cost $12,000-$18,000.
Stricter servicing assessment
Lenders shade (discount) rental income when calculating your borrowing power. They'll typically only count 70-80% of the expected rental income. They also add the existing property expenses to your liability side. The net effect: your borrowing capacity for an investment property is almost always lower than for an equivalent owner-occupier purchase.
Different tax treatment
This is where investment property gets interesting. The interest on your investment loan is tax-deductible. Depreciation, property management fees, repairs, insurance - all deductible against your rental income. If your property is negatively geared (costs more than it earns), you can offset the loss against your other income. More on this below.
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LVR Requirements and Deposit Expectations
The Loan-to-Value Ratio rules for investors are tighter than owner-occupiers. Here's the landscape:
| LVR | Deposit Required (on $600K) | LMI | Rate Impact | Availability |
|---|---|---|---|---|
| 60% or less | $240,000+ | No | Best rates available | All lenders |
| 61-70% | $180,000-$240,000 | No | Excellent rates | All lenders |
| 71-80% | $120,000-$180,000 | No | Competitive rates | All lenders |
| 81-85% | $90,000-$120,000 | Yes ($5K-$10K) | +0.10-0.20% | Most lenders |
| 86-90% | $60,000-$90,000 | Yes ($12K-$18K) | +0.20-0.40% | Selected lenders |
| 91-95% | $30,000-$60,000 | Yes ($20K-$30K) | +0.40-0.60% | Very few lenders |
LMI estimates are indicative only. Actual LMI depends on loan amount, LVR, and insurer. Current as of February 2026.
My recommendation for most investors is to aim for 80% LVR or below. The LMI savings are substantial, and your rate will be noticeably better. If you're using equity from your existing home (which I cover below), reaching 80% LVR is often achievable without dipping into your cash savings.
Interest-Only vs Principal and Interest: The Real Maths
This is the question I get asked most by property investors. Interest-only (IO) payments mean you're only paying the interest charges each month - you're not reducing the loan balance. Principal and Interest (P&I) means you're paying down the loan as well.
Let me run the real numbers on a $500,000 investment loan:
Why many investors choose interest-only
- Better cash flow - $452 per month less in repayments means more money in your pocket or available for the next purchase
- Higher tax deduction - 100% of your IO repayment is tax-deductible interest. With P&I, only the interest portion is deductible (and that shrinks over time)
- Flexibility - You can direct the $452/month saving toward paying down your non-deductible home loan faster instead
Why some investors prefer P&I
- Lower total cost - Over 30 years, IO costs significantly more in total interest because you never reduce the principal during the IO period
- Lower rates - P&I rates are typically 0.20-0.40% lower than IO rates
- Forced equity building - You're building equity through repayments, not just relying on capital growth
- Easier refinancing - Lenders prefer seeing P&I history when you apply for your next loan
Most lenders offer IO terms of 1-5 years, after which the loan converts to P&I. When that happens, your repayments jump - and I've seen investors get caught out by this. If you go IO, plan for the P&I conversion from day one.
How Lenders Assess Rental Income
This catches many investors off guard. When you tell a lender "the property rents for $550 per week," they don't use that full amount in their calculation. They apply what's called a rental income shading - typically discounting the rent by 20-30%.
Here's a practical example. Your investment property earns $550/week ($28,600/year):
- Lender A (80% shading) - Counts $22,880 as income
- Lender B (75% shading) - Counts $21,450 as income
- Lender C (70% shading) - Counts $20,020 as income
That difference in shading - combined with different servicing buffers - means your borrowing power can vary by $80,000-$150,000 between lenders for the exact same property. This is one of the biggest reasons to use a broker rather than going to your bank. We know which lenders shade at 80% and which are stuck at 70%.
Rental yield: the number investors need to know
Gross rental yield tells you how much income a property generates relative to its value. The formula is simple:
Gross Rental Yield = (Annual Rental Income ÷ Property Value) × 100
A $600,000 property renting for $550/week ($28,600/year) has a gross yield of 4.8%. The national average is sitting at 4.1% according to CoreLogic data for February 2026. Regional areas are higher - think 5-7% in places like Rockhampton, Bundaberg, and parts of western Sydney.
Net yield is what matters after you subtract costs (council rates, insurance, management fees, maintenance, strata). A typical investor should expect net yield to be 1.5-2.5% lower than gross yield.
Negative Gearing and Tax: What You Need to Know
Negative gearing is when your investment property costs more to hold than it earns in rent. The "loss" can be offset against your other income, reducing your tax bill. It's one of the most powerful (and debated) features of Australian property investment.
A practical example
Let's say you earn $120,000 salary and own an investment property:
- Rental income: $28,600/year ($550/week)
- Loan interest: $32,500/year ($500,000 at 6.5%)
- Property costs (rates, insurance, management, maintenance): $8,200/year
- Depreciation: $6,500/year
- Total deductions: $47,200
- Net rental loss: -$18,600
That $18,600 loss is deducted from your $120,000 salary, so you're taxed on $101,400 instead. At the 37% marginal rate, that's a tax saving of approximately $6,882 per year. In effect, the government is subsidising part of your property holding costs.
However - and I always tell my investor clients this - don't buy a property just for the tax deduction. You need the underlying investment to make sense. The property needs to grow in value over time, or you're just losing money more slowly. Get a good accountant who specialises in property investment. I can recommend several if you need one.
Comparing Investment Property Lenders
Not all lenders are equal when it comes to investment property loans. Some actively chase investor business with sharp rates and flexible policies. Others add heavy premiums and restrict LVRs. Here's how the current landscape looks:
| Lender | Investor Variable Rate | Max Investor LVR | IO Available | Best For |
|---|---|---|---|---|
| Macquarie Bank | 6.09% | 90% | Yes (5yr) | Sharp rates, fast turnaround |
| CBA | 6.34% | 90% | Yes (5yr) | Branch support, relationship pricing |
| ANZ | 6.29% | 90% | Yes (5yr) | Package discounts for multiple properties |
| Westpac | 6.25% | 90% | Yes (5yr) | Investor specialists, flexible assessment |
| NAB | 6.39% | 90% | Yes (3yr) | Relationship rates, low fees |
| ING | 6.04% | 80% | Yes (5yr) | Low rates, digital process |
| Athena | 5.89% | 80% | No | Lowest variable rates (P&I only) |
| Bankwest | 6.15% | 80% | Yes (5yr) | Low fees, clean digital experience |
| Pepper Money | 6.89% | 90% | Yes (5yr) | Non-conforming, flexible income assessment |
Rates are indicative only, based on investment property P&I loans at 80% LVR. IO rates typically 0.20-0.40% higher. Your actual rate depends on LVR, loan amount, and overall profile. Rates subject to change. Information current as of February 2026.
The difference between the cheapest and most expensive lender here is 1.00%. On a $500,000 investment loan over 30 years, that's roughly $320 per month or $115,200 over the life of the loan. Comparing is not optional - it's essential.
Using Equity to Buy an Investment Property
This is one of the most common strategies I help clients with. If you own your home and have built up equity, you can use it as the deposit for an investment property without touching your savings.
How it works
Let's say your home is worth $800,000 and you owe $350,000. Your available equity (at 80% LVR) is:
($800,000 × 80%) - $350,000 = $290,000 available equity
That $290,000 can serve as the deposit and purchasing costs for an investment property worth up to around $1.1 million (at 80% LVR with costs). In practice, most people I work with use equity to buy investment properties in the $400,000-$700,000 range.
The two common structures
Option 1: Increase your existing home loan. Your lender increases your home loan from $350,000 to $640,000, and you draw $290,000 to fund the investment purchase. Simple, but the extra borrowing is technically secured against your home.
Option 2: Separate investment loan. You set up a standalone investment loan with the equity as security. This keeps the tax deductibility clean - your accountant will thank you. The investment loan interest is deductible; your home loan interest isn't.
I almost always recommend Option 2. It's cleaner for tax purposes and gives you more flexibility if you want to refinance either loan independently down the track.
SMSF Property Loans: A Quick Overview
Buying property through a Self-Managed Super Fund is possible but significantly more complex. A few things you need to know:
- Fewer lenders - Only a handful of lenders offer SMSF lending. The major banks have largely exited this market.
- Lower LVR - Maximum 70-80% LVR, meaning you need more cash in your super fund
- Higher rates - Expect 0.50-1.00% above standard investment rates
- Minimum loan sizes - Usually $200,000-$250,000
- Limited Recourse Borrowing Arrangement (LRBA) - The property must be held in a separate bare trust. You can't renovate structurally while the loan is in place.
- Sole purpose test - The property must be for investment only. You can't live in it, and your relatives can't either.
SMSF property purchases can work well for people with substantial super balances (typically $200,000+) who want to diversify their super into direct property. But the costs and complexity mean it's not for everyone. Get specialist financial and legal advice before committing.
Frequently Asked Questions
How much deposit do I need for an investment property?
Most lenders require a minimum 10% deposit for investment properties, though 20% is recommended to avoid Lenders Mortgage Insurance (LMI). Some lenders will go to 90% LVR for investors, but at higher rates and with stricter assessment. A 20% deposit on a $600,000 investment property is $120,000. Using equity from your existing home can reduce or eliminate the need for cash savings. Read our deposit guide for a full breakdown.
Are investment property loan rates higher than owner-occupier rates?
Yes, typically 0.25% to 0.50% higher. On a $500,000 loan, that's roughly $75-$150 extra per month. This premium exists because APRA considers investment lending higher risk. However, rates vary significantly between lenders - some charge barely any premium while others add 0.60% or more.
Can I use equity in my home to buy an investment property?
Yes, and this is one of the most common strategies I see. If your home is worth $800,000 and you owe $400,000, you have $400,000 in equity. Most lenders will let you access up to 80% of your home's value minus what you owe - in this case, $240,000 - which can serve as the deposit and costs for an investment purchase.
Should I choose interest-only or principal and interest?
Interest-only payments are popular with investors because they maximise cash flow and tax deductions. On a $500,000 loan at 6.5%, IO repayments are about $2,708/month vs $3,160/month for P&I - that's $452/month difference. However, you're not building equity, and rates are typically 0.20-0.40% higher. Most lenders offer IO terms of 1-5 years before converting to P&I.
How do lenders assess rental income for borrowing power?
Most lenders shade rental income by 20-30%, meaning they only count 70-80% of the expected rent in their servicing calculation. If your property rents for $500/week ($26,000/year), the lender might only count $18,200-$20,800. This accounts for vacancies, maintenance and management fees. The exact shading percentage varies by lender - another reason to use a broker who knows the policy differences.
Can I buy an investment property through my SMSF?
Yes, through a Limited Recourse Borrowing Arrangement (LRBA). However, SMSF lending is specialised - fewer lenders offer it, LVRs are typically capped at 70-80%, rates are higher, and you can't renovate the property structurally while it's under the LRBA. Minimum loan sizes are usually $200,000-$250,000. Get specialist advice before going down this path.
Your Next Step
Looking at the ABS figures for December 2025, investor lending is at its strongest level in years. Rental yields are healthy, population growth is driving demand, and lenders are competing aggressively for investor business.
But the difference between a good investment loan and a mediocre one can be tens of thousands of dollars over the loan life. The rate spread between lenders is wide, the policy differences are significant, and the structure you choose (IO vs P&I, standalone vs cross-collateralised) has real financial consequences.
Your first move should be checking your borrowing power and understanding your equity position. You can book a free consultation with us - we'll review your situation across our panel of 83 lenders and show you exactly what's possible. No obligation, no cost to you.
