Building a property portfolio in Parramatta means understanding how lenders assess your second, third and fourth purchase differently from your first.
For many investors, the main challenge is not finding the deposit for the next property. It is showing a lender that you can service more than one mortgage at the same time. APRA's serviceability buffer requires each new loan to be assessed at an interest rate 3 percentage points above the loan product rate.
How lenders calculate borrowing capacity for a second investment property
Lenders assess your income, deduct your living expenses and existing debts, then deduct the new loan repayment calculated at the assessment rate. APRA's Prudential Practice Guide APG 223 notes that it is common industry practice to include expected rent as income, but that prudent serviceability policies apply a minimum haircut of 20 per cent, so no more than 80 per cent of expected rent is generally counted. Lenders also place less reliance on rental appraisals than on rent actually received. The evidence a lender accepts, and how much rent it counts, is set by its own credit policy.
For example, a borrower earning $180,000 who owns an apartment leased at $550 per week has annual rent of $28,600. After an 80 per cent haircut, $22,880 may be counted. The lender assesses the repayment on the loan at the product rate plus 3 percentage points rather than the rate actually paid. On a loan of $450,000 with a product rate of 6 per cent, the assessed rate would be 9 per cent, which produces a higher assessed repayment than the one the borrower pays.
Using equity to fund a deposit
Equity is the difference between a property's value and the amount owed on it. Equity can be accessed through a refinance or by adding a second loan secured against the same property.
An 80 per cent loan to value ratio (LVR) is the threshold above which lenders generally require lenders mortgage insurance (LMI). For example, a property worth $700,000 with $400,000 owing would support total borrowing of $560,000 at 80 per cent LVR, leaving $160,000 of equity available before LMI would generally apply. Lending above 80 per cent LVR requires both the lender's own credit approval and approval from the LMI insurer under its own criteria. Many lenders cap equity release at 80 or 90 per cent LVR. The LMI premium is payable by the borrower, is calculated on a sliding scale based on the loan amount and LVR, and may attract state or territory stamp duty in some jurisdictions.
Some lenders offer LMI waivers to borrowers in certain occupations, including specified medical, legal and accounting professions. These waivers are a matter of individual lender policy and are not a legislative requirement.
Structuring loans across multiple properties
When loans are cross-secured across several properties, selling one property can require the lender to release its security and recalculate the loan to value ratio across the remaining properties. The lender may revalue those properties, or require a repayment before releasing security. Each lender sets these terms in its own credit policy.
Debt-to-income limits on new lending
APRA activated a debt-to-income (DTI) lending limit effective 1 February 2026. Each authorised deposit-taking institution (ADI) may lend up to 20 per cent of its new owner-occupier loans, and up to 20 per cent of its new investor loans, to borrowers with a DTI ratio of six times or greater. The limits are measured quarterly and apply to each portfolio separately. Non-ADI lenders are not currently subject to the limit.
The limit is a portfolio measure on each lender's new lending. It is not a cap on individual borrowers, and each lender decides individual applications within its own credit policy. APRA confirmed on 28 May 2026 that high DTI lending remained well below the limit and was not restricting overall bank lending.
A DTI ratio is total debt divided by gross annual income. For example, a medical professional earning $200,000 with total borrowings of $1,300,000 has a DTI ratio of 6.5. That ratio falls within the category the limit covers. Whether a particular lender can lend to that borrower depends on how much of its quota is used in the quarter and on its own credit policy.
Interest-only and principal and interest repayments
During an interest-only period, repayments cover interest only, which can help cash flow. The loan balance does not reduce during that period. APG 223 requires lenders to assess interest-only loans on principal and interest repayments over the remaining loan term, excluding the interest-only period. This usually reduces borrowing capacity compared with a principal and interest loan. Interest rates on interest-only loans are often higher. APG 223 notes that interest-only terms are usually one to five years, although they may extend, and some lenders offer longer interest-only terms, subject to reassessment. APRA expects interest-only periods to be of limited duration, particularly for owner-occupiers.
Rental income and new purchases
Lenders assess rental income using evidence such as a current lease, rental statements or a rental appraisal. Lenders generally place less reliance on rental appraisals than on rent actually received. Most lenders accept an agent's rental appraisal for a new purchase, usually with a haircut applied. A property that is not tenanted at settlement, including an off-the-plan purchase or a property occupied by the vendor, has no rental history. Whether projected rent is counted, and on what basis, is set by each lender's policy.
Tax treatment of properties acquired after 12 May 2026
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, from the 2027-28 income year, net rental losses from established residential properties acquired after 7:30pm AEST on 12 May 2026 can be deducted only against income from other residential properties, not against salary or other income. Excess losses can be carried forward against future residential property income. Properties held at 7:30pm AEST on 12 May 2026, including those under contract at that time, are grandfathered until sold. Losses from eligible new builds are not affected by these changes. Interest, body corporate fees, council rates, insurance and other holding costs remain deductible under existing rules.
Variable and fixed rate portions
Some borrowers split a loan between a variable portion and a fixed portion. Features such as offset accounts, limits on extra repayments and break costs differ between lenders and products and are set out in each lender's loan contract.
Frequently Asked Questions
Can I use equity from my first investment property to buy a second one?
Yes. If your property has increased in value or you have paid down the loan, you can borrow against that equity to fund the deposit and costs for your next purchase. Most lenders allow you to borrow up to 80 per cent of the property's current value without paying Lenders Mortgage Insurance.
How do lenders count rental income when I apply for a second investment loan?
Most lenders count only 80 per cent of the gross rental income and only if the property has been leased for at least 12 months with evidence of consistent rent payments. The loan repayment on that property is assessed at the current rate plus a three percentage point buffer, not your actual repayment.
What is the debt-to-income limit for investment loans?
From February 2026, lenders can approve only 20 per cent of new investor loans each quarter to borrowers with total debts of six times their income or more. If your total borrowings divided by your gross income exceed six, your application may be delayed or declined depending on the lender's quarterly position.
Should I use interest-only or principal and interest repayments for my investment loans?
Interest-only repayments reduce your monthly cost and improve serviceability for your next purchase, which helps during the accumulation phase. Once your portfolio is complete, switching to principal and interest reduces long-term interest and builds equity faster.
Do I still get negative gearing benefits if I buy an investment property now?
If you buy an established property after 12 May 2026, losses can only be offset against other residential property income from the 2027-28 financial year onward, not against your salary. New builds and properties purchased before that date are exempt and retain full negative gearing treatment.
