How Banks Assess Property Investors

Lenders start with your income: salary, bonuses, overtime, self-employed income and rent. Some types are discounted. For example, bonuses and overtime may only be partly counted, and self-employed income usually needs two years of tax returns.

They then subtract living expenses, using either your declared figures or a benchmark, whichever is higher. Expenses such as childcare, school fees and insurance all reduce what you can borrow.

Most lenders only count part of your rent, often around 70% to 80%, to allow for vacancies, management fees and maintenance. This is called shading. Some lenders shade differently depending on property type or location.

For a new purchase, the lender will usually use a rental appraisal from a property manager or the valuer's estimate.

Lenders test your repayments at a higher rate than you will actually pay. APRA, the banking regulator, expects lenders to use a buffer, currently at least 3 percentage points above the loan rate, though this can change. Lenders also usually assess interest-only loans on a principal and interest basis over the remaining term.

Every existing loan is also tested at a buffered rate, which is why serviceability gets tighter with each property you add.

Lenders differ in how they shade rent, which benchmarks they use for expenses, whether they recognise negative gearing benefits, and how they treat existing debts with other lenders. For an investor with several properties, those differences can add up to a big gap in borrowing capacity.

That is where a broker with access to a large panel can help. We compare policies and match you with lenders that suit your situation, though no broker can guarantee approval.

You cannot change lender policies, but you can control a lot of what they see. Reducing or closing credit cards you do not need, paying off small personal loans, keeping clear bank statements and having accurate records of your living expenses all help. If you are self-employed, having up-to-date tax returns lodged makes a big difference.

Timing matters too. Applying soon after a pay rise is confirmed, or after a car loan is paid off, can improve your position. On the other hand, taking on new debt or changing jobs just before applying can make things harder. We can help you plan the timing so your application shows your situation at its best, honestly and accurately.

Finally, be upfront. Lenders verify income, expenses and debts, and inconsistencies can slow or derail an application. A clear, accurate picture from the start usually leads to a faster and smoother result, even if the answer is not quite what you hoped for.