Do you know how investment units differ from houses?

Investment loans for units come with different serviceability calculations and lender appetite than loans for detached houses. Lenders apply stricter borrowing limits, adjust rental income assessments and, in many cases, refuse to lend on certain unit types or buildings altogether.

How lenders assess rental income on investment units

Lenders typically use between 70 and 80 per cent of the gross rental income when assessing your serviceability. For investment units, most lenders also apply an additional haircut if the building has a high vacancy rate or a history of owner-occupier sales. In our experience, a general dentist earning $180,000 annually who could borrow $850,000 for a house might see that capacity drop to $720,000 for a unit in a building with more than 50 per cent investor ownership. Body corporate fees, which are often $1,500 to $3,000 per quarter for units, are treated as a recurring expense and reduce borrowing capacity further. Lenders add those fees to your existing commitments before running the serviceability test, which includes a 3.0 percentage point buffer above the loan product rate.

Consider a general dentist purchasing a two-bedroom unit in a small block with low body corporate fees and strong owner-occupier demand. The property generates $550 per week in rent. One lender uses 80 per cent of that income and applies no additional discount. Another lender uses 75 per cent and applies a 5 per cent investor concentration discount because the block is 60 per cent tenanted. The borrowing outcome differs by tens of thousands of dollars between those two policies, even though the property and the buyer are identical.

Loan-to-value ratio limits and when lenders cap borrowing

Most lenders cap investment unit lending at 90 per cent loan-to-value ratio, and many reduce that to 85 or 80 per cent for units in buildings above a certain size or in specific postcodes. Some lenders refuse to lend above 80 per cent on any unit classified as a studio or with a floor area below 50 square metres. If the unit is in a building with more than four storeys, more than 50 units, or a commercial component exceeding 20 per cent of the total floor area, lenders often apply stricter caps or decline the application entirely. Certain lenders also maintain postcode overlays that restrict high-rise lending in inner-city areas with high investor concentration. Borrowing at 90 per cent LVR on an investment unit also triggers Lenders Mortgage Insurance, and the premium is higher for units than for houses at the same LVR due to the increased risk weighting under APRA's prudential standards.

When your deposit sits below 20 per cent, always confirm the lender's unit policy before you exchange contracts. A verbal indication from a lender's broker support team is not the same as a formal credit assessment, and policies change between preapproval and settlement if your contract extends beyond 90 days.

Interest-only terms and repayment structure for units

Investment loans for units are generally available on interest-only terms for up to five years, matching the same offering as for houses. However, lenders apply stricter serviceability tests to interest-only applications at higher LVRs. From 1 February this year, each lender is also subject to a debt-to-income lending limit: no more than 20 per cent of new investor loans can go to borrowers with a total DTI ratio of six times or greater. That limit applies at the lender level, not at the borrower level, so if your income and total debt position places you above a six-times ratio, the lender may decline your application or require a larger deposit to bring the loan amount down.

An interest-only term reduces your monthly outgoings and can improve cash flow during the first few years of ownership. At current variable rates, a $600,000 loan on interest-only costs around $2,700 per month, compared with $3,400 per month on principal-and-interest terms. If your investment strategy includes holding the property long-term and paying down the loan using equity release or refinancing, interest-only terms align with that approach. If your intention is to reduce debt quickly, principal-and-interest terms deliver more certainty and reduce the total interest paid over the life of the loan.

Tax treatment and deductibility under the new negative gearing rules

Interest on borrowings used to acquire an investment unit is deductible against assessable income, as are body corporate fees, council rates, insurance, property management fees, and depreciation. From the 2027-28 income year, losses on established residential investment properties acquired after 7:30pm AEST on 12 May this year can only be offset against other residential property income, including capital gains on residential properties. Excess losses are carried forward. Properties held at 12 May, including those under contract awaiting settlement at that date, remain fully deductible under the current rules until sold. New builds acquired after 12 May also retain full deductibility. For general dentists purchasing an established unit now, your rental losses for the 2026-27 income year are fully deductible against your salary. From the 2027-28 income year onward, those losses are quarantined unless you have other residential property income to offset them against.

If you are considering an investment loan refinance or expanding your portfolio, the timing of your purchase relative to the 12 May cutoff determines your deductibility treatment for the life of that asset. This makes the choice between new and established stock more significant than it has been in the past. You can learn more about structuring loans for multiple properties on our page about expanding your property portfolio.

Capital gains tax changes from 1 July next year

From 1 July next year, the 50 per cent capital gains tax discount is replaced by cost base indexation using the Consumer Price Index and a 30 per cent minimum tax rate on real gains accruing from that date. For units purchased before 1 July next year and sold after that date, gains are split: the portion accruing before 1 July next year is taxed under the current 50 per cent discount rules, and the portion accruing after that date is indexed and subject to the 30 per cent minimum rate. You can obtain a market valuation as at 1 July next year or apply an ATO apportionment formula to determine the split. For new builds, you can choose between the 50 per cent discount and the indexation method at the time of disposal, giving you flexibility to select the option that delivers the lower tax.

If you buy an established unit today and hold it for ten years, a portion of your gain will be taxed under three different sets of rules depending on when the value accrued. That complexity does not change the fundamental investment case, but it does make accurate record-keeping and specialist tax advice more important than before.

Lender overlays on specific buildings and apartment precincts

Lenders maintain internal postcode and building exclusion lists that are not published and change regularly. A unit in a high-rise building in a CBD precinct might be declined by one lender due to oversupply concerns but approved by another at 80 per cent LVR. Buildings with unresolved cladding issues, outstanding remediation work, or a history of structural defects are often excluded entirely. Some lenders also refuse to lend on units where the developer or a related entity still owns more than 20 per cent of the lots in the scheme, as this creates concentration risk and can affect saleability.

Before you make an offer, ask your broker to run a building search with at least three lenders. That search checks the building against each lender's internal exclusion list and confirms the maximum LVR and whether interest-only terms are available. If the building is flagged, you know immediately and can either increase your deposit, choose a different lender, or walk away before you pay for a contract review.

Call one of our team or book an appointment at a time that works for you. We work with general dentists across Australia and can match your borrowing profile to lenders who actively support investment loans for dentists on units, including those purchased with deposits below 20 per cent where LMI is required.

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