How banks assess investment properties

Over 40% of new home loans written in Australia are for investment properties.

The way banks assess these is different to owner-occupied purchases. Rental income gets factored in, but lenders will only use around 70–90% of it to account for vacancies and other risk. I

If the property is negatively geared, the tax benefit gets factored in too, this can bump borrowing power quite a bit if your in the top tax bracket.

A smart approach for existing homeowners is pulling equity from their current property as the deposit, set up as a separate loan split.

Here's the trap though, when you go directly to a bank, they'll often want to use your existing home as additional security for the new purchase. This is called cross-collateralisation.

They're tying both properties together, which gives them a lot of control.

Want to sell or refinance down the track? The bank has a say over both. It rarely gets explained upfront, but keeping loans on separate securities is almost always the smarter structure.