Unlock the secrets to purchasing an investment property

Investment loans operate under separate credit risk settings and capital rules to owner-occupied lending

Investment loans attract higher risk weights under APRA's Prudential Standard APS 112, which means lenders price them differently and assess them more conservatively than owner-occupied loans. Where there is any doubt about whether a loan is for owner-occupied or investment purposes, the loan must be treated as an investment loan. This distinction flows directly into your borrowing capacity, the deposit you need, and the rate you pay.

Consider a barrister with assessable income around $250,000 who wants to acquire a rental property. Each lender must assess new borrowers' capacity to service the loan at an interest rate at least 3.0 percentage points above the loan product rate, and from 1 February 2026, lenders may lend up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings exceed six times your assessable income, you fall into that restricted cohort, which narrows your lender options and may require a larger deposit or co-borrower to proceed.

To be classified as a standard loan under APS 112, the lender must hold unequivocal enforcement rights over the property at all times, including a right to possession and power of sale in the event of default, and the exposure must be secured by a registered first mortgage over the property. If you hold other debt secured over the same property, those exposures are aggregated for loan-to-value calculation purposes.

How negative gearing works under the grandfathering provisions from 12 May 2026

Losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income, including salary and wages, until the property is sold. From the 2027-28 income year, losses related to established residential investment properties acquired after 7:30pm AEST on 12 May 2026 are deductible only against other income from residential properties, including capital gains on residential properties, and excess losses can be carried forward to offset residential property income in future years.

If you acquired an established property after 12 May 2026, you can still deduct interest and holding costs, but only against rental income or gains from other residential properties. If your rental loss in a given year is $18,000 and you have no offsetting residential property income, that $18,000 rolls forward and can be used when you sell or when you acquire another residential investment generating positive income.

Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. Knock-down rebuilds that do not increase dwelling numbers, and substantial renovations, are not eligible. New builds retain full negative gearing treatment regardless of acquisition date, which makes them structurally more attractive for barristers with high marginal tax rates who expect early-year losses.

Capital gains tax treatment splits at 1 July 2027 for properties held across that date

For assets owned before 1 July 2027 and sold after that date, gains are taxed under the current rules for the portion accruing before 1 July 2027 and under the new rules for the portion accruing after that date. From 1 July 2027, the 50 per cent CGT discount for individuals on affected assets is replaced by cost base indexation using CPI and a 30 per cent minimum tax rate on real capital gains accruing from that date.

In a scenario where you purchased an established property in late 2026 for $850,000 and sell it in 2030, you apportion the gain between the pre-1 July 2027 period and the post-1 July 2027 period. The pre-July 2027 portion receives the 50 per cent discount, and the post-July 2027 portion is indexed to inflation and taxed at the higher of your marginal rate or 30 per cent on the real gain. Taxpayers may either obtain a market valuation as at 1 July 2027 or apply an ATO-published apportionment formula. For investors in eligible new build residential properties, both the existing 50 per cent CGT discount and the new indexation and 30 per cent minimum tax arrangements are available as a choice at the time of disposal.

The 50 per cent CGT discount continues to apply to capital gains accruing on all residential property up until 1 July 2027 for individuals who have held the asset for more than 12 months, and the main residence CGT exemption and the four small business CGT concessions are retained under the new arrangements. Your principal place of residence remains exempt, and if you operate a practice through a structure that qualifies for the small business concessions, those remain available.

Interest-only periods reduce early holding costs but change the LVR treatment at higher loan amounts

A long-term interest-only residential loan is classified as non-standard where the LVR is greater than 80 per cent and the contractual interest-only period is greater than five years or is not specified. Non-standard classification increases the capital charge the lender holds against your loan, which typically translates into a higher rate or stricter policy.

If you borrow at 85 per cent LVR and request a seven-year interest-only term, the loan is non-standard. If you keep the interest-only term to five years or less, or reduce your LVR to 80 per cent or below, the loan remains standard. Most barristers structure initial interest-only terms between three and five years, then either refinance or convert to principal and interest depending on cash flow at that point.

Interest on borrowings used to acquire or hold residential rental property is deductible against assessable income to the extent the property is rented or held to produce assessable income. Interest-only repayments preserve deductibility and keep more cash available for other investments or chamber expenses, which matters when your income fluctuates with brief flow.

Loan serviceability calculations include rental income at a discounted rate and existing property expenses

Lenders assess your capacity to service an investment loan using your assessable income, existing commitments, and the net rental income from the property you intend to purchase. Rental income is typically shaded by 20 to 30 per cent to account for vacancy, maintenance, and management costs. If the property generates $650 per week in rent, the lender credits you with around $455 to $520 per week in serviceability.

Your existing property commitments, including any owner-occupied mortgage, personal loans, and credit card limits, are factored in at their notional repayment rates. APRA requires all lenders to assess new borrowers' capacity to service a home loan at an interest rate that is at least 3.0 percentage points above the loan product rate. If the investment loan product rate is 6.2 per cent, serviceability is tested at 9.2 per cent.

Barristers with variable income streams need to demonstrate assessable income over a two-year period using tax returns and notices of assessment. If your last two years show $240,000 and $280,000 respectively, most lenders average that to $260,000 for serviceability purposes. Some lenders accept the most recent year if it is higher, but that approach is lender-specific and depends on the strength of your practice area and tenure at the bar.

LMI premiums apply above 80 per cent LVR and are calculated on the portion of the loan above that threshold

LMI is generally required by lenders on residential loans where the LVR exceeds 80 per cent, and the premium is a cost borne by the borrower and is calculated on a sliding scale based on the loan amount and LVR. If you borrow $680,000 to purchase a property valued at $800,000, your LVR is 85 per cent and LMI applies. The premium might be around $15,000 to $18,000 depending on the insurer and lender, and you can capitalise that cost into the loan or pay it upfront.

LMI waivers for lawyers are available from several lenders for barristers, typically up to 90 per cent LVR on investment loans and sometimes higher on owner-occupied purchases. Where a waiver applies, you avoid the premium altogether, which makes a material difference to the upfront cost and the ongoing loan balance. Not all lenders offer waivers on investment lending, so product selection matters.

Under APS 112, an ADI may reduce its credit risk capital requirement where the exposure is covered by eligible LMI, and to be eligible, the insurance must provide cover for all losses up to at least 40 per cent of the higher of the original loan amount and the outstanding loan amount. The waiver arrangements for professionals are a commercial decision by the lender and do not change the regulatory capital treatment, but they do remove the direct cost to you.

Offset accounts do not reduce the LVR calculation but they do reduce the interest charged and preserve deductibility

Offset account balances do not reduce the loan amount for LVR purposes under APS 112. If your loan is $680,000 and you hold $80,000 in offset, the LVR is still calculated on the full $680,000 loan amount. However, you pay interest only on the net $600,000, and because the loan balance remains at $680,000, the full interest charge on that balance remains deductible when you eventually draw down the offset funds.

This structure is particularly relevant for barristers who hold cash reserves for tax liabilities or who accumulate income in offset while waiting for the next property acquisition. You maintain liquidity, reduce the net interest cost, and preserve the full deduction. If you instead paid down the loan principal, you would need to redraw those funds later, and redrawn amounts are only deductible to the extent they are used for income-producing purposes.

Fixed rate investment loans carry break costs if you repay or refinance before the fixed term ends

If you fix your investment loan for three or five years and then need to refinance or sell the property before the fixed term expires, the lender will typically charge a break cost. The break cost compensates the lender for the difference between the fixed rate you are paying and the rate the lender can now earn by reinvesting the repaid funds in the wholesale market.

Break costs are not always material. If market rates have risen since you fixed, the break cost may be zero or negligible because the lender can reinvest at a higher rate. If market rates have fallen, the break cost can be substantial. A barrister who fixed a $700,000 loan at 5.8 per cent in early 2025 and then sells the property in mid-2026 when the equivalent wholesale rate is 4.9 per cent might face a break cost around $12,000 to $18,000 depending on the remaining fixed term and the lender's calculation method.

Variable rate loans do not carry break costs, which gives you flexibility to sell, refinance, or pay down the loan without penalty. Most barristers who expect to expand their property portfolio within a few years favour variable rates or split structures to preserve that flexibility.

Stamp duty and other acquisition costs are not deductible upfront but depreciation on fixtures and capital works deductions are available over time

Stamp duty, conveyancing fees, and other acquisition costs form part of the cost base of the property for capital gains tax purposes but are not deductible in the year of purchase. Other ongoing holding costs, such as council rates, insurance, property management fees, repairs and depreciation, are deductible under existing ATO rules for the period the property is rented or genuinely available for rent.

Depreciation on plant and equipment, such as appliances, blinds, and air conditioning units, and capital works deductions on the building structure are claimed over their effective life or statutory period. For properties constructed after 1987, the capital works deduction is 2.5 per cent per year for 40 years. A quantity surveyor's report sets out the depreciation schedule, and the cost of that report is itself deductible.

If you acquire a property with a purchase price at the current median and the building was completed in 2018, you can claim capital works deductions on the construction cost for the remaining years in the 40-year period, plus plant and equipment depreciation on the fixtures installed at that time, subject to the diminishing value or prime cost method you elect.

Borrowing capacity for a second or third investment property depends on the equity you hold and the rental coverage of your existing properties

When you apply for a second investment loan, the lender assesses the net rental position of your existing investment property and the equity available in both your owner-occupied property and your first investment. If your first investment property has increased in value and you have paid down some principal, you can access that equity to fund the deposit and costs for the next purchase.

Equity release loans allow you to borrow against the increased value of an existing property without selling it. If your owner-occupied property was valued at $1,100,000 when you purchased it and is now worth $1,300,000, and your loan balance is $650,000, you hold $650,000 in equity. At 80 per cent LVR, you can borrow up to $1,040,000 against that property, which means you could access up to $390,000 in additional funds for investment purposes without triggering LMI.

The rental income from your existing investment property must service its own loan, and any shortfall reduces your borrowing capacity for the next purchase. If your first investment property generates a net rental loss of $8,000 per year after all deductible expenses, that $8,000 is added to your existing commitments when the lender assesses serviceability for the second loan.

Call one of our team or book an appointment at a time that works for you

Investment lending for barristers involves navigating APRA serviceability buffers, debt-to-income limits, legislative changes to negative gearing and capital gains tax treatment, and lender-specific policy on professional waivers and high-LVR lending. The borrowing structures you choose now, including interest-only terms, fixed versus variable splits, and offset arrangements, affect your deductibility, cash flow, and flexibility over the life of the loan. Call one of our team or book an appointment at a time that works for you.

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