Do you know how investment loan approval works?

Investment loan approval depends on rental income, your existing debt commitments and the deposit you can bring to the transaction.

ACT Government employees often ask whether their secure employment makes approval automatic. It does not. Lenders assess every investor application against the same prudential settings, applying a serviceability buffer to determine whether you can service the debt at test rates three percentage points higher than the product rate. Your employment stability helps, but the assessment turns on rental income projections, your loan-to-value ratio and your debt-to-income position under the caps that took effect in February this year.

This article walks through the mechanics of approval for public sector investors in Canberra, the deposit structures that work under current settings, and the negative gearing changes taking effect from July next year that will reshape the types of property lenders prefer to fund.

How lenders assess rental income for serviceability

Lenders shade rental income before including it in your serviceability calculation. Most apply an 80 per cent factor to account for periods when the property sits vacant, or they reduce advertised rent by an assumed vacancy rate and then apply a percentage factor to the remainder. Either way, rental income is never counted dollar for dollar.

Consider an investor with a $650,000 loan against a Belconnen unit returning $550 per week. The lender assesses $22,880 in annual income after shading, not the full $28,600. If your existing debt commitments include a car loan and a mortgage on your principal place of residence, the rental income from the investment property needs to cover the new loan repayments at the test rate after applying that discount. If it does not, the shortfall comes out of your salary.

That shortfall is where ACT Government employees with stable income and predictable salary progression can often absorb a funding gap that would knock out another applicant. Your capacity to service negative cash flow gives you an edge, provided your debt-to-income ratio sits within the 20 per cent allocation most lenders set aside for loans above six times income. Lenders with tighter DTI policies may decline applications that others approve, which is why access to a range of investment loan options across multiple lenders matters more now than it did two years ago.

Deposit requirements and loan-to-value settings

Most lenders cap investor loans at 90 per cent LVR, and some restrict certain postcodes or unit developments to 80 per cent. At 90 per cent LVR you will pay Lenders Mortgage Insurance, which can add several thousand dollars to the upfront cost depending on the loan amount and the insurer's appetite for the security postcode.

Deposit can include genuine savings, equity from your existing home, or a combination of both. If you hold $150,000 in equity against your principal residence in Gungahlin and the property is valued conservatively, you can access that equity through refinance or a top-up facility and use it as your deposit for the investment purchase. The lender will want to see that releasing the equity does not push your total borrowing beyond their DTI threshold or their maximum combined LVR across both securities.

Body corporate levies, strata reports and building defect histories all influence how lenders value units in higher-density developments around the light rail corridor. A two-bedroom apartment in Dickson with a clean strata record and low levies will usually value closer to recent sales than a similar unit in a building with pending rectification work or levy arrears. If the valuation comes in under contract price, you will need to cover the shortfall in cash or renegotiate.

What happens to negative gearing from July 2027

From 1 July 2027, net rental losses on residential investment properties acquired on or after 7:30pm AEST on 12 May 2026 cannot be offset against your salary. Losses are quarantined and can only be used against future rental income or future capital gains on residential property.

Properties you held before that date, or those under contract before that date, remain grandfathered under the existing rules. You can continue to claim rental losses against your ACT Government salary indefinitely for those assets.

The carve-out that matters most for new purchases is the eligible new build definition. Dwellings constructed on previously vacant land, or projects that increase the number of dwellings on a parcel, retain access to full negative gearing for the first investor purchaser. That means a townhouse built on a subdivided block in Mawson qualifies. A knock-down rebuild that replaces one house with one house does not. If the new build is occupied for more than 12 months before you buy it, the property loses the concession and is treated as established stock.

Lenders are already adjusting serviceability models to reflect the reduced tax benefit for established dwellings purchased by clients who cannot claim the loss against salary. If you are looking at an established unit in Braddon and your taxable income sits at $110,000, the after-tax cost of holding that property increases from July next year because the rental loss no longer reduces your assessment. Some lenders are pre-emptively applying the new treatment to borrowing capacity calculations even though the legislation does not commence until next year, particularly where settlement will occur after 1 July 2027.

DTI caps and portfolio growth settings

The debt-to-income cap introduced in February allows lenders to fund up to 20 per cent of new investor loans at a DTI of six times or greater. That allocation is separate from the owner-occupier allocation, so an investor loan at seven times your income does not automatically disqualify you, but it does mean the lender needs available capacity within their quarterly or rolling measure.

If you earn $120,000 and hold $400,000 in owner-occupied debt plus $300,000 in investor debt, your combined DTI already sits above six times. Adding a second investment property will push the ratio higher unless rental income from the existing property is treated as income rather than an offset. Some lenders include shaded rental income in the income denominator. Others do not. The difference in treatment changes your DTI result by a full multiple in some scenarios, which is why comparing loan structures across lenders produces different answers for the same borrower.

ACT Government employees with salary packaging arrangements or regular overtime need to confirm how each lender treats non-base income. Most will include overtime or allowances if they have been received consistently for two years, but not all will include the full amount. Salary sacrifice reduces your taxable income but does not reduce the income figure used for DTI purposes at most lenders, although this is not universal.

Interest rate structure and repayment type

Variable rate investment loans currently sit higher than equivalent owner-occupied variable rates, typically by 30 to 60 basis points depending on the lender and your LVR. Fixed rates for investment purposes are priced similarly, with a margin over the equivalent owner-occupied fixed term.

Interest-only repayments reduce your monthly commitment and preserve cash flow during the holding period, but they increase the total interest cost over the life of the loan and require you to either refinance or convert to principal-and-interest repayments at the end of the interest-only term. Most lenders offer up to five years interest-only on investment loans. After that period, the loan reverts to principal-and-interest unless you refinance or negotiate an extension.

If your strategy depends on holding the property long enough to benefit from capital growth and then selling or refinancing within ten years, interest-only loans can make sense. If your intention is to pay down the debt and hold the asset into retirement, principal-and-interest from the start reduces your total interest bill and builds equity faster, which improves your borrowing position for subsequent purchases.

Split loan structures allow you to fix a portion of the debt for rate certainty while leaving the remainder on a variable rate for flexibility. You can make extra repayments or redraw against the variable portion without break costs, and you lock in a known cost on the fixed portion. The allocation between fixed and variable depends on your risk tolerance and your view on where rates are heading, not on a standard formula.

How refinancing fits into portfolio strategy

Refinancing an existing investment loan can release equity for your next deposit, reduce your interest rate, or shift you to a lender with better appetite for your next purchase. If you bought an investment property three years ago at 80 per cent LVR and the property has increased in value, you may now be sitting at 70 per cent LVR based on a current valuation. That additional equity can be accessed through a refinance and used as deposit for a second property, subject to serviceability and DTI settings.

Rate discounts on investment loan refinancing are often deeper than the discount offered to a new customer, particularly if your loan balance is above $500,000 and your LVR is below 80 per cent. Lenders compete harder for refinance business in that segment because the credit risk is lower and the customer is already conditioned to dealing with mortgage debt.

If your current lender has tightened their investor policy or reduced their DTI allocation, moving to a lender with more capacity can be the difference between approval and decline for your next acquisition. Policy overlays change more frequently than published rate sheets, and a lender who funded your first purchase may not be the right lender for your second.

Call one of our team or book an appointment at a time that works for you. We work through the approval structure, the deposit options that fit your position, and the lender policies that align with the timeline and the type of property you are looking to acquire.

Frequently Asked Questions