Investment Loan Challenges for Carnegie Property Investors

Lenders assess investment loan applications using serviceability rules, rental income haircuts and other policies that can reduce how much you can borrow. Recent tax changes also affect how your property performs.

For Carnegie residents weighing up a first or next investment, these challenges are manageable when you understand them before you apply. Our investment loans team works through them with clients every week.

How Much Can I Borrow for an Investment Property?

Your investment loan amount depends on your income, existing debts, living expenses and how the lender assesses your repayments. Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's actual rate, so your borrowing capacity is lower than the repayment you would actually make.

The buffer applies to authorised deposit-taking institutions, which include banks, credit unions and building societies. Lenders also look closely at existing commitments, including the limits on credit cards, even if you carry no balance. A lower card limit can lift your borrowing power. You can get a starting estimate on our borrowing capacity page.

Since 1 February 2026, each bank has also been limited in how much of its new lending can go to borrowers whose total debt is six times their income or more. This is a portfolio limit on each lender, not a cap on you personally, and APRA has noted that high debt-to-income lending has remained well below the limit. Lenders still apply their own policies, so the same application can get different answers from different banks.

How Do Lenders Count Rental Income?

Lenders generally count only part of your expected rent. APRA's guidance says prudent lenders should include no more than 80 per cent of expected rent, to allow for periods when the property is empty.

That 20 per cent haircut is not for management fees, repairs or other holding costs, so those costs still need to come from your wider budget. Lenders also tend to rely less on a rental appraisal for a new purchase than on actual rent received. Each lender sets its own rules on the evidence it accepts, so it pays to check before you choose one.

As an example, consider a Carnegie buyer who expects a rental appraisal to cover most of the loan repayments. The lender counts only 80 per cent of that rent, and the serviceability test uses the higher buffer rate. The buyer's borrowing capacity comes in lower than hoped. After a broker compares lenders and the buyer reduces credit card limits, a different lender's assessment lets the purchase proceed at a comfortable level. The lesson is to test your numbers with several lenders before making an offer.

Interest Only or Principal and Interest: Which Suits an Investor?

Interest only repayments lower your early repayments, but they do not increase how much you can borrow. Lenders assess an interest only loan as if you will repay principal and interest over the shorter remaining term, so your borrowing capacity can actually be lower.

To see the difference, take a loan of $600,000 at the illustrative rate of 6.75% p.a. Interest only repayments would be about $3,375 a month. On a 30-year principal and interest loan at the same rate, repayments would be about $3,892 a month. If the loan was 30 years with a five-year interest only period, repayments after that period would be calculated over 25 years and be about $4,145 a month. These figures are illustrative only, and your actual rate will differ.

The main trade-off is that interest only leaves your loan balance unchanged, so you build equity only through growth in the property's value. Only the interest portion of your repayments is deductible under either structure, and the principal portion is not. Speak with your accountant about how this applies to you. You can test different structures with the repayments tools on our site.

Negative Gearing Changes Investors Should Understand

Negative gearing rules now depend on when you buy and what you buy. Losses on residential properties held at 7:30pm AEST on 12 May 2026 can still be deducted against other income, including salary, until the property is sold.

For established residential properties acquired after that time, net rental losses from the 2027-28 income year can only be deducted against other residential property income, including residential capital gains. Excess losses can be carried forward. Eligible new builds acquired after 12 May 2026 can still deduct losses against all income. The rules do not change whether interest is deductible, but they change how a loss can be used.

The capital gains tax discount is also changing. From 1 July 2027, the 50 per cent discount is replaced by cost base indexation and a 30 per cent minimum tax rate on gains accruing from that date. Gains before that date are taxed under the current rules. Tax outcomes depend on your circumstances, so get advice from your accountant before you buy.

Does the Loan Purpose Affect Your Tax Deductions?

Yes. Interest is deductible based on what the borrowed money is used for, not on which property secures the loan. Using equity from your home or an existing investment for personal spending means the interest on that portion is not deductible.

If you are considering an equity release to fund a deposit on a new investment, the borrowing is usually split so that each part has a clear purpose. Redraws are treated as separate borrowings for deductibility under ATO guidance. An offset account lowers the interest charged rather than reducing the loan balance, so it also lowers the interest you can claim. The trade-off is that keeping extra cash in an offset reduces your deduction but also reduces your actual interest cost. Your accountant can confirm how this applies.

When you release equity, remember that lending above 80 per cent of the property's value generally requires lenders mortgage insurance, and that you pay the premium. Each lender sets its own limits above that level.

Can Refinancing Improve Your Investment Loan?

Refinancing can reduce your rate or restructure your debts, but it carries costs and a new serviceability test. Lenders assess you as a new borrower, so changes to your income, debts or the buffer rate since your last application will apply.

It is worth reviewing your loan when your fixed rate ends or when your property has grown in value. Our refinancing page explains how this works, and our loan health check is a good place to start. Discharge fees, valuation costs and any break costs on a fixed loan vary by lender, so weigh them against the likely saving. A broker can compare lenders across Australia and request a rate discount on your behalf, though the result depends on your lender and your deposit or equity.

Carnegie Investors: Local Points to Check

Carnegie is a Melbourne suburb in the south-east, close to Caulfield and Ormond, and the area has a mix of houses and apartments. If you are looking at an apartment, ask about the body corporate fees and rules, because fees reduce your net return and some lenders look closely at the building. Check stamp duty costs for your purchase with the stamp duty page before you set your budget.

Bring your questions about rental yield and vacancy rates to your property manager or a local agent, as these vary between properties and over time.

If you are ready to test your numbers, call one of our team or book an appointment at a time that works for you. We will compare options from banks and lenders across Australia and help you structure your investment loan with confidence.

Frequently Asked Questions