Avoid These 5 Mistakes When Buying an Investment Property

Purchasing an investment property requires a different approach to finance than buying the home you plan to live in. Lenders assess investor applications with additional scrutiny, and recent regulatory changes mean that strategies that worked two years ago may no longer deliver the outcome you expect.

This article addresses five common errors that property investors in Hawker make when structuring finance for a rental property purchase, and explains how to avoid them before you sign a contract.

Interest Only Loans Are Not Automatically Available

Interest only repayments are a common structure for investment loans because they reduce monthly outgoings and allow investors to direct capital toward other uses. However, interest only periods are subject to lender approval and depend on your loan-to-value ratio, deposit size, and overall debt position.

Consider a buyer in Hawker who holds $180,000 in equity in their owner-occupied home and intends to purchase a two-bedroom unit in Belconnen to rent out. If that buyer borrows at 85 per cent loan-to-value ratio and uses the equity as deposit, most lenders will approve an interest only period for one to five years. If that same buyer borrows at 90 per cent and pays Lenders Mortgage Insurance, interest only repayments may not be available at all, or may be restricted to a shorter term.

Do not assume you can select interest only as a checkbox item. Your borrowing structure, deposit source, and total debt relative to income all influence whether a lender will approve that repayment type. If your investment strategy depends on lower monthly repayments, confirm with your broker before making an offer that the lender you are considering will approve interest only at your intended loan-to-value ratio.

The Deposit Requirements for Investment Property Are Higher

Lenders distinguish between owner-occupier and investor loans at the point of application, and the minimum deposit for investor finance is typically higher. Most lenders require a 10 per cent deposit plus costs for an investment property, compared to 5 per cent for an owner-occupied purchase. Some lenders will lend up to 95 per cent for investors, but those products carry higher interest rates, mandatory Lenders Mortgage Insurance, and reduced access to features such as offset accounts or interest only periods.

In our experience, buyers in Hawker who are purchasing their first investment property often underestimate the upfront capital required. A buyer with $30,000 saved may be able to purchase an owner-occupied property with a 5 per cent deposit, but that same amount will not cover a 10 per cent deposit plus stamp duty and settlement costs on most investment properties in the Canberra region.

If you do not have sufficient cash savings, you may be able to use equity in your existing home as a deposit. However, this approach is still subject to the lender's assessment of your total debt position and repayment capacity, and does not bypass the requirement for a higher deposit percentage.

Rental Income Is Discounted When Calculating Borrowing Capacity

Lenders include expected rental income when assessing how much you can borrow, but they do not count it dollar-for-dollar. Most lenders apply a discount, or "shading factor", of 20 per cent to account for vacancy periods, maintenance costs, and rental arrears. Some lenders shade rental income by up to 25 per cent.

This means that if you intend to purchase a property in Hawker that will generate $550 per week in rent, the lender will assess your borrowing capacity using only $440 per week. The rental income contributes to your application, but it does not offset the loan repayments on a one-to-one basis.

The serviceability buffer also applies. Under current APRA guidelines, lenders must assess your ability to repay the loan at a rate 3 percentage points higher than the actual product rate. This buffer is applied to the full loan amount, not just the shortfall after rental income is taken into account. The combination of shading and the serviceability buffer means that the amount you can borrow for an investment property is typically lower than the amount you could borrow for an owner-occupied purchase, even when rental income is included.

The Debt-to-Income Cap May Limit Your Loan Amount

From 1 February 2026, APRA introduced a debt-to-income cap that restricts the proportion of new investor loans a lender can write at a DTI of 6 times or greater. This cap applies separately to investor and owner-occupier portfolios, and it means that some lenders will decline applications that exceed a DTI of 6, even if you can demonstrate capacity to service the loan under the standard buffer.

As an example, a household in Hawker with combined annual income of $140,000 and total debt of $850,000 sits at a DTI of just over 6. If that household applies for an additional $100,000 investment loan, the total debt rises to $950,000 and the DTI increases to 6.8. That application may be declined by lenders who have already reached their 20 per cent allocation of high-DTI investor loans, even if the applicants can afford the repayments.

If you are applying for refinancing or a top-up on an existing investment loan, the DTI cap may also affect your options. Not all lenders have reached their allocation limit, and some non-bank lenders are not subject to the cap. However, you should assume that lenders will assess your total debt position more carefully than they did prior to February, and that a DTI above 6 may require additional documentation or a larger deposit.

Negative Gearing Rules Change From July 2027

Negative gearing allows investors to offset rental losses against other income, including salary and wages. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, this treatment will change for residential properties acquired on or after 7:30pm AEST on 12 May 2026.

From 1 July 2027, net rental losses on affected properties can only be offset against other residential rental income or carried forward to offset future residential rental income or capital gains. Losses cannot be offset against salary or wages. This means that if you purchase an established property in Hawker after 12 May 2026, any shortfall between rental income and your loan repayments, rates, and other holding costs will not reduce your taxable income from employment.

Properties acquired before 7:30pm AEST on 12 May 2026, including those under contract at that time, are grandfathered and may continue to be negatively geared under existing rules. Eligible new builds, defined as dwellings constructed on previously vacant land or where the number of dwellings on a site increases, are also exempt and may be negatively geared under the existing rules.

If your property investment strategy relies on using rental losses to reduce tax on other income, confirm the date the property was constructed and whether it meets the eligible new build criteria before making an offer. The change does not prevent you from purchasing an established investment property, but it does change the after-tax return, particularly in the early years of ownership when rental income may not cover all holding costs.

True North Mortgage Solutions works with property investors across Hawker and the wider ACT region to structure finance that aligns with your goals and the current lending environment. Call one of our team or book an appointment at a time that works for you.

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