Rental vacancies remain tight across most capital cities. National rents have risen around 5% over the past year. Recent lending data shows investors now account for roughly four in ten new mortgages.
Most commentary stops there. Investors are returning. Rents are rising. The market is heating up again.
But the more important shift isn’t demand.
It’s credit.
While public conversation remains fixated on interest rates and affordability pressure, lenders are quietly adjusting how they assess investment borrowers. And those changes are materially altering borrowing capacity.
That matters far more than headlines.
A two-speed market is forming
In the sub-$1 million bracket, competition is real. Investors and first home buyers are bidding on the same properties, but for very different reasons.
First home buyers are largely influenced by policy. Grants, deposit guarantees and scheme-based incentives continue to direct demand into that segment. It is engineered participation.
Investors, however, are responding to fundamentals. Vacancy rates remain tight. Rental growth has strengthened holding positions. In many cases, yields are sitting closer to forecast repayments than they were during the ultra-low rate cycle. The holding equation is no longer speculative. It is arithmetic.
When those fundamentals align with subtle shifts in lender appetite, a two-speed market begins to form. Certain segments tighten. Others soften.
And those who understand how credit is moving position themselves differently to those who simply watch rates.
The part most investors don’t see
Borrowing capacity is not simply a function of income and interest rates.
It is a function of how your lender chooses to assess you.
To make that practical, consider a real scenario.
Assumptions:
- Couple with no children
- Combined household income: $230,000
- Rental income: $30,000
- Existing home loan: $700,000 at 5.80%
Nothing about this borrower changes.
Same income. Same debt. Same financial position.
Now look at how the outcome shifts when only the assessment method changes.
Borrowing Capacity Comparison
Same investor. Different lender treatment.
| How the lender assesses you | Approximate New Borrowing |
| Major bank, ignores rental tax benefits | $620,000 |
| Major bank, includes rental tax benefits | $730,000 |
| Non-bank lender, uses actual repayments (no rental tax benefits included) | $708,000 |
| Non-bank lender, uses actual repayments + includes rental tax benefits | $940,000 |
That is a $320,000 difference for the exact same borrower.
No change in income. No change in assets. No additional deposit.
Only the calculator changed.
Why this gap exists
There are two structural drivers behind that difference.
The first is how rental losses are treated.
If the cost of holding an investment property exceeds the rent it produces, that shortfall reduces your taxable income when you lodge your return. That reduction lowers your tax payable.
Not all lenders recognise that deduction inside their servicing model.
If a lender ignores rental tax benefits, they add your employment income and rental income together, tax the full amount, and use that reduced after-tax figure to assess affordability. It is conservative and assumes the tax benefit does not exist.
If a lender includes rental tax benefits, they factor in the expected tax deduction before calculating your net position. That increases your assessed after-tax income inside the calculator. More assessed income translates directly into higher borrowing capacity.
The second driver is how existing debt is assessed.
Most major banks apply a servicing buffer of approximately three percent above your actual interest rate when calculating capacity. If you are paying 5.80 percent, you may be assessed closer to 8.80 percent.
Some non-bank lenders instead use your actual repayment amount.
Individually, each of these adjustments shifts the outcome. Combined, they explain how the same investor can move from $620,000 to $940,000.
This is not aggressive structuring.
It is understanding how credit policy works.
Banks are not moving randomly
ME Bank has updated its servicing model to include rental tax benefits.
St George has announced changes extending investment interest-only terms to 15 years under 80 percent LVR and increasing investment lending to 95 percent LVR P&I, previously capped at 90 percent.
Banks do not expand investor policy accidentally.
When credit teams extend interest-only periods or increase LVR limits, it signals controlled appetite.
We are monitoring other lenders closely. There is a clear directional shift emerging.
Why this matters now
All of this is occurring while rental markets remain tight and investor participation rises. It is happening in a segment of the market where first home buyer demand is also strong.
That combination creates tension in certain price brackets, particularly under $1 million.
For first and second-time investors, especially those with household incomes above $200,000, the environment is more nuanced than headlines suggest.
Rising interest rates have increased repayment costs. But where rental tax benefits are recognised inside servicing, higher interest costs also increase the tax deduction factored into the calculator. That partially offsets repayment pressure within the assessment model.
That nuance rarely makes news headlines.
But it changes what is possible.
All of this is unfolding at the same time.
Rental markets remain tight. Investor participation is rising. First home buyer demand is still active in the same price brackets. And in the background, lender policy is gradually becoming more accommodating for investors who understand how to structure correctly.
That combination matters.
For first and second-time investors, particularly those with household incomes above $200,000, the environment is more nuanced than headlines suggest. Yes, interest rates remain elevated compared to the ultra-low cycle. But where rental tax benefits are recognised inside servicing models, higher interest costs can increase the tax deduction factored into the assessment. That partially offsets the repayment pressure created by those higher rates.
That nuance rarely makes it into mainstream commentary. But it materially changes borrowing outcomes.
What we are observing is not a dramatic shift. It is a gradual one. Credit teams are adjusting models. Certain lenders are expanding policy. Investor lending is being treated as strategic again rather than something to tightly restrict.
That does not mean the market is risk-free. It does not mean every investor should act immediately. It does mean that structure now plays a larger role than timing.
Because in this environment, two investors with identical incomes can receive dramatically different outcomes depending on where they sit.
The difference between $620,000 and $940,000 is not optimism. It is not leverage. It is not luck.
It is understanding how credit is applied to your position.
And in a market that is becoming more competitive in key segments, that understanding is not optional.
If you are considering your next move this year, the most important question is not whether the market will rise or fall. It is whether you are being assessed in a way that aligns with your strategy.
If you would like us to model your position across different lender frameworks and show you what is realistically possible, book a free 30-minute finance strategy session
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).