Investment Loans and Buying in Wentworthville

Buying an investment property in Wentworthville now means working within a changed tax framework that didn't exist 18 months ago.

The negative gearing changes that took effect from the 2027-28 income year altered the deductibility of holding costs for established properties purchased after May last year, while the capital gains indexation rules that started in July last year changed the way gains are calculated on properties sold from that date forward. Both changes apply to new acquisitions only. If you already own investment property, your existing tax treatment continues until you sell. For investors considering a purchase now, the question is which property type and loan structure align with the rules as they currently stand.

How Negative Gearing Works for New Purchases

Interest and holding costs on an established investment property purchased now are deductible only against income from residential properties, not against salary or wage income. Excess losses carry forward and can be used to offset residential property income in future years, including capital gains when you sell. New builds remain exempt and continue to allow full deductibility against all income.

Consider a buyer purchasing an older unit near Wentworthville station with an investment loan of around 80 per cent of the purchase price. If the annual interest is $28,000 and the rental income is $24,000, the $4,000 loss can be used to reduce tax on other residential property income, such as rent from a second property or a future capital gain on either property. It cannot reduce tax on employment income. If there is no other residential income that year, the loss is quarantined and carried forward.

Eligible New Builds and the Deduction Exemption

A new build constructed on previously vacant land or a development that increases the number of dwellings on a site qualifies for the exemption. Interest and other costs remain fully deductible against all income, including wages.

Wentworthville has seen scattered townhouse developments and low-rise apartment projects, particularly around the Dunmore Street and Station Street precinct. A two-bedroom townhouse purchased off the plan in one of these developments would allow the buyer to claim all holding costs against salary income from day one, even if the property runs at a loss. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. The exemption also ends if the new build is occupied for more than 12 months before being on-sold to a subsequent investor.

Capital Gains Indexation From July Last Year

For properties acquired from July last year onward, the portion of any capital gain that accrues after that date is indexed to inflation. You pay tax only on the real gain above inflation, and that indexed gain is subject to a minimum tax rate of 30 per cent unless you are receiving certain government payments.

For a property purchased now and sold in ten years, the entire gain will fall under the indexation method. Cost base indexation using the Consumer Price Index replaces the 50 per cent discount for gains accruing after July last year. Buyers of eligible new builds can choose between indexation and the 50 per cent discount when they sell, depending on which delivers the lower tax.

Fixed or Variable Rates for Investor Loans

Lenders price investment loan products differently to owner-occupier loans due to the higher risk weighting applied under the prudential framework. Variable rates on investor loans are typically higher than equivalent owner-occupier rates, and fixed rates follow a similar pattern.

A variable rate gives flexibility if you want to make extra repayments or sell within the first few years without incurring break costs. A fixed rate locks in repayments for a set period, which can help with cash flow forecasting if the property is negatively geared and you are relying on stable outgoings. In our experience, investors who expect to hold the property long term and want repayment certainty during the initial years tend to favour a portion of fixed debt, while those building a portfolio or planning a shorter hold often stick with variable.

Interest-Only Versus Principal and Interest Repayments

Interest-only repayments reduce the monthly outgoing, which can be useful if the goal is to maximise cash flow or if you are holding multiple properties. The interest component remains deductible, and paying down principal does not create any additional tax benefit on an investment loan.

An interest-only period typically runs for one to five years, after which the loan reverts to principal and interest unless you request an extension. Lenders assess each extension request based on your circumstances at the time. Not all lenders offer the same interest-only terms, and some cap the maximum period or apply higher rates once the loan is interest-only for longer than five years. Principal and interest repayments reduce the loan balance over time, which lowers the LVR and can make refinancing or accessing equity in future more straightforward.

Deposit Requirements and Lenders Mortgage Insurance

Most lenders allow a maximum LVR of 90 per cent on an investment property, though 80 per cent is the threshold above which Lenders Mortgage Insurance applies. LMI is a one-off premium added to the loan or paid upfront, calculated based on the loan amount and LVR.

A buyer borrowing 85 per cent to purchase a unit in Wentworthville would pay LMI, with the premium varying between lenders and depending on whether the loan is for a house or an apartment. Apartments can attract higher LMI premiums or lower maximum LVRs with some lenders, particularly if the building has more than a certain number of storeys or if the buyer already holds other investment debt. Some lenders also apply postcode-based LVR restrictions, though Wentworthville is not generally subject to those limits.

Serviceability and the Debt-to-Income Limit

Lenders assess your ability to service the loan by calculating your income against all existing debts and the proposed new borrowing, applying the interest rate buffer of 3.0 percentage points above the loan rate. Rental income from the property is included, but most lenders apply a shading factor of 70 to 80 per cent to account for vacancy and management costs.

The debt-to-income limit introduced in February last year restricts the amount of new lending a bank can write at a DTI ratio of six times or more. The limit applies separately to investor and owner-occupier lending, and each lender manages it at portfolio level. If your total debt, including the new investment loan, sits below six times your gross income, the limit does not affect your application. Above that threshold, the loan can still be approved, but it falls within the 20 per cent cap the lender must manage across all investor lending in that quarter.

Rental Income Assumptions and Vacancy Rates

Lenders require evidence of the likely rental income before settlement, typically in the form of a rental appraisal from a licensed property manager. Wentworthville's proximity to Westmead and Parramatta, combined with the train line and access to the M4, supports consistent rental demand from a mix of families, couples and single professionals.

Vacancy assumptions are built into the serviceability calculation, but they do not change the amount you can borrow as much as your other ongoing commitments and the rental appraisal figure. A property that generates stronger rental income relative to the purchase price will service more easily, which can increase your borrowing capacity or allow you to hold multiple properties without hitting serviceability limits.

Loan Features That Support Portfolio Growth

An offset account linked to an investment loan does not reduce the loan balance for the purpose of calculating the LVR under the prudential standard, but it does reduce the interest charged. Because interest is deductible on an investment loan, some investors prefer to direct surplus cash into an offset linked to non-deductible debt, such as an owner-occupier loan, rather than the investment loan. The approach depends on your overall debt structure.

Redraw facilities allow you to access extra repayments made on a principal and interest loan, though the tax treatment of redrawn funds depends on what the funds are used for. If you redraw to purchase another investment property, the interest on the redrawn amount is deductible. If you redraw for private purposes, it is not. Keeping loan purposes separate makes tax reporting more straightforward.

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Frequently Asked Questions