Serviceability Tests Now Use a 3 Percentage Point Buffer
Banks assess your ability to repay an investment loan at a rate 3 percentage points above the actual product rate. If you're quoted 6.2 per cent variable, the lender will test whether you can still make repayments if the rate climbs to 9.2 per cent. This buffer has been in place since October 2021 and applies to every new loan, whether you're buying your first rental property or adding to an existing portfolio.
In our experience, the buffer catches many Roselands buyers who assume their current rental income will cover the shortfall. Consider a buyer purchasing a two-bedroom unit near Roselands Shopping Centre, with rental income of $550 per week. At the actual rate, the loan repayment might sit comfortably below that figure. Under the buffered assessment, the repayment could exceed $750 per week, leaving the borrower to demonstrate they can cover the gap from their salary. The bank will also apply a discount to the rental income, typically between 80 and 90 per cent, to account for vacancy and maintenance.
The serviceability buffer applies to your total debt position, not just the new loan. If you already hold a mortgage on your own home, that commitment is tested at the same buffered rate when you apply for an investment loan.
Debt-to-Income Limits Now Cap High-Ratio Lending
From February 2026, banks can lend no more than 20 per cent of their new investor loans to borrowers with total debt exceeding six times their annual income. If your household earns $120,000 a year, a total debt position above $720,000 places you in the restricted band. The limit applies separately to owner-occupier and investor lending, and bridging loans or new construction purchases are excluded.
For Roselands investors, the DTI cap matters when you already carry a mortgage on your principal place of residence and want to add a rental property. If your existing home loan sits at $500,000 and you want to borrow another $300,000 for an investment property, your total debt reaches $800,000. On a household income of $120,000, that represents a DTI of 6.67. Some lenders will still approve the loan within their 20 per cent allocation, but others may decline or require a larger deposit to bring the loan amount down.
The DTI restriction does not apply to non-bank lenders, who remain outside the regulatory perimeter for this measure. Where a bank declines on DTI grounds, a non-bank may still approve the same application, though often at a higher interest rate.
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Negative Gearing Changes Start from the 2027-28 Income Year
Under legislation that received royal assent in June 2026, rental property losses on established dwellings purchased after 12 May 2026 can only be deducted against other residential property income from the 2027-28 income year onward. If you bought an investment property in Roselands before that date, or if you're under contract and settlement occurs after that date but the contract was signed before 7:30pm on 12 May 2026, the old rules continue to apply and you can offset losses against your salary indefinitely.
For properties acquired after 12 May 2026, interest, council rates, insurance and other holding costs remain deductible, but excess losses must be carried forward and can only offset future rental income or capital gains on residential property. If you buy a two-bedroom apartment in Roselands today and hold it at a loss of $8,000 per year, that loss is quarantined. When you eventually sell the property and realise a capital gain, the carried-forward losses reduce your taxable gain. The change does not apply to new builds, which retain full deductibility regardless of purchase date.
Investors who bought between 12 May 2026 and 30 June 2027 can still claim full deductions for the 2026-27 income year, but the quarantine applies from 1 July 2027 onward. The distinction between contract date and settlement date has become material, and lenders now ask for both when assessing applications lodged in the second half of 2026.
Capital Gains Tax Treatment Splits at 1 July 2027
From 1 July 2027, capital gains on investment properties are taxed under a hybrid model. Gains accruing before that date continue to attract the 50 per cent discount for assets held longer than 12 months. Gains accruing after that date are taxed on the real gain only, with the cost base indexed to inflation, and a minimum 30 per cent tax rate applies to the indexed portion.
If you buy an investment property in Roselands now and sell it in 2030, you will apportion the gain between the pre-July 2027 period and the post-July 2027 period. You can obtain a market valuation as at 1 July 2027 or use an ATO formula that allocates the gain proportionally across the ownership period. The 30 per cent minimum rate applies only where your marginal rate would otherwise result in a lower effective tax rate on the indexed gain. Investors receiving certain government payments, including the Age Pension or JobSeeker, are exempt from the minimum rate in any year they receive those payments.
New builds remain eligible for the 50 per cent discount at sale, regardless of when the gain accrues. A new build is defined as a dwelling constructed on previously vacant land or a dwelling that increases the total number of dwellings on a parcel. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify.
Deposit Requirements Differ Between Owner-Occupiers and Investors
Most lenders require a 20 per cent deposit for investment properties to avoid lenders mortgage insurance, though some will lend at 90 per cent LVR with LMI. Under the prudential framework, investment loans attract higher risk weights than owner-occupier loans at the same LVR, which feeds through to pricing and capital allocation. A 10 per cent deposit on an investment property will trigger a higher LMI premium than the same deposit on an owner-occupied home, and the interest rate will typically sit 0.3 to 0.5 percentage points above the equivalent owner-occupier rate.
Genuine savings requirements also apply at most lenders. A 10 per cent deposit usually needs to have been held in your account for at least three months, though equity from an existing property can substitute for cash savings. If you own a home in Roselands with $150,000 in available equity, that equity can be used as the deposit on an investment property without needing to demonstrate a separate savings history. The first mortgage is refinanced or topped up to release the equity, and those funds are then applied as the deposit on the second property.
Interest-Only Periods Are Capped at Five Years for Standard Loans
Investment loans are commonly structured with an interest-only period to maximise cash flow and tax deductions. Under the prudential standard, a loan with an interest-only period longer than five years and an LVR above 80 per cent is classified as non-standard and attracts a higher risk weight. Most lenders therefore cap interest-only terms at five years on loans above 80 per cent LVR. At lower LVRs, some lenders will offer up to ten years interest-only, though pricing and serviceability both tighten.
At the end of the interest-only period, the loan reverts to principal and interest unless you apply to extend the interest-only term. That reversion increases the repayment amount significantly. On a $500,000 loan at 6.2 per cent, interest-only repayments sit around $2,580 per month. Once the loan reverts to principal and interest with 25 years remaining, repayments jump to around $3,290 per month. Lenders assess serviceability at the higher principal-and-interest figure from the outset, even if you select interest-only.
Rental Income Is Discounted in Serviceability Calculations
Lenders apply a haircut to rental income when calculating your borrowing capacity, typically 80 per cent for residential investment properties. If a property in Roselands generates $600 per week in rent, the lender will only credit $480 per week in the serviceability assessment. The discount accounts for vacancy, maintenance, and periods when the property is between tenants.
Vacancy rates in the Canterbury-Bankstown local government area, which includes Roselands, have historically remained low due to strong demand for affordable rental accommodation close to transport and shopping infrastructure. Roselands Railway Station sits on the Bankstown Line, providing direct access to the Sydney CBD and connecting suburbs. The area also attracts families and established migrants, many of whom prefer renting near the Roselands Shopping Centre precinct. Despite favourable local conditions, lenders apply the same 20 per cent discount nationally and do not adjust for suburb-level vacancy data.
If you plan to buy an investment property while renting out your current home and moving into the new property as your principal place of residence, the rental income from your former home is still discounted at 80 per cent. The lender treats the transaction as a change of occupancy and recalculates your serviceability position accordingly.
Foreign Investment Restrictions Have Tightened Since April 2025
Foreign persons, including temporary residents, have been banned from purchasing established dwellings in Australia from 1 April 2025 until 30 June 2029, with limited exceptions. The ban was extended in the 2026-27 Budget. Temporary residents can still apply for approval to purchase new dwellings or vacant land. Permanent residents and New Zealand citizens remain exempt and can purchase established property without restriction.
Application fees for foreign investment approvals were tripled from 1 April 2025, and the ATO has increased audit activity targeting land banking and non-compliance with development conditions. Foreign investors who acquire vacant residential land must complete construction within four years and cannot sell the land until construction is finished. Foreign owners who do not occupy or rent out their property for at least 183 days in a year are liable for an annual vacancy fee, now set at double the original foreign investment application fee.
For investors in Roselands who hold temporary visas or who are foreign persons under the Act, these restrictions have narrowed the investment opportunity set to new builds and off-the-plan purchases. Lenders will require evidence of FIRB approval before settling any loan to a foreign person, and most banks have tightened credit policy around foreign income verification and deposit source.
Non-Bank Lenders Operate Outside Some Regulatory Limits
Non-ADI lenders, including mortgage trusts and specialist finance companies, are not subject to the DTI cap or the APRA serviceability buffer. They set their own credit policies, which can provide flexibility for investors who fall outside bank parameters. A Roselands investor with a DTI above six, or with income that does not fit a standard payslip structure, may find a non-bank lender more accommodating.
Non-bank lenders fund their loan books through warehouse facilities and securitisation rather than retail deposits, and their cost of funds is typically higher than a bank's. That cost flows through to the interest rate, which can sit 1 to 2 percentage points above a major bank rate. Non-bank lenders also tend to have shorter product lifespans, with many loans reverting to a higher rate after an initial fixed or discounted period. Refinancing to a bank once your circumstances improve is common.
If you're self-employed or hold income through a company structure, non-bank lenders often accept alternative documentation, such as business bank statements or accountant letters, in place of tax returns. This can accelerate the approval process for investors who have recently restructured their affairs or who have legitimate tax planning in place that reduces their taxable income below their actual cash flow.
Portfolio Lending Becomes More Complex After Your Second Property
Once you hold two or more investment properties, lenders assess your entire portfolio position rather than each loan in isolation. Cross-collateralisation, where multiple properties secure a single loan facility, can simplify the initial approval but creates complications when you want to sell one property or refinance selectively. Most brokers recommend holding each investment property on a separate loan with separate security, even if all loans sit with the same lender.
If you own your home in Roselands and already hold one investment property, a third purchase triggers closer scrutiny of your overall leverage, liquidity, and concentration risk. Some lenders cap the number of investment properties they will finance for a single borrower, typically between four and six properties depending on the institution. Others apply a declining LVR scale, requiring a larger deposit on each successive purchase.
When structuring a portfolio, the order in which you acquire properties can affect your long-term flexibility. Buying your home first and then adding investment properties allows you to access refinancing options and equity release on your principal place of residence without triggering a reassessment of your investment lending. Buying investment properties first and then applying for an owner-occupier loan later can result in the lender recalculating your entire position, including re-testing the investment loans under current serviceability rules.
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Frequently Asked Questions
What is the serviceability buffer on investment loans?
Banks assess your ability to repay an investment loan at a rate 3 percentage points above the actual product rate. This buffer has been in place since October 2021 and applies to all new loans, including refinances.
When do the negative gearing changes start?
From the 2027-28 income year, losses on established investment properties purchased after 12 May 2026 can only be deducted against other residential property income. Properties bought before that date or eligible new builds retain full deductibility.
How much deposit do I need for an investment property?
Most lenders require a 20 per cent deposit to avoid lenders mortgage insurance, though some will lend at 90 per cent LVR with LMI. Investment loans also attract higher interest rates than owner-occupier loans at the same LVR.
How is rental income treated in serviceability calculations?
Lenders typically discount rental income by 20 per cent when calculating borrowing capacity, applying only 80 per cent of the expected rent to account for vacancy and maintenance. This discount applies regardless of local vacancy rates.
Do non-bank lenders have the same serviceability rules as banks?
No, non-ADI lenders are not subject to the APRA serviceability buffer or the DTI cap. They set their own credit policies, which can provide more flexibility, though rates are typically higher than major banks.
