How Much Can I Borrow For an Investment Property in Australia?
Navigating the home loans market is much like walking through a minefield, not least when you’re an expat.
Simple questions like “how much can I borrow for an investment property?” are met with long, convoluted answers that often leave you feeling more confused than before you asked them.
Granted, there’s a lot to unpack with bank lending policy, but that doesn’t mean you shouldn’t be able to find what you’re looking for.
So if you’re a property investor in pursuit of a mortgage, continue below to learn everything you need to know about how much you can borrow, and how to secure the best deal, in plain, simple English.
How Much Can I Borrow on an Investment Property in Australia?
Many banks and other lending institutions in Australia will grant a loan of up to 80% of the property’s purchase price for residential properties and 70% for commercial properties. Some banks will lend as much as 95% if the borrower also agrees to pay Lender’s Mortgage Insurance (LMI).
These rates generally apply to both Australian residents and non-residents with Australian citizenship, meaning expats can secure a loan of 80% of their investment property’s value or even 95% including LMI.
Here’s an example. Mia is an Australian citizen living in Singapore. She’s just bought an investment property in Melbourne for $750,000. She’s in a very strong financial position and, with help from Odin Mortgage, manages to secure the maximum Loan to Value (LTV) rate of 80% with no LMI.
This means she puts down 20% of the property’s price as a deposit and receives a mortgage equivalent to the remaining 80%. With some simple maths, we can work out that she’ll be able to borrow $600,000 at the LTV rate of 80%.
What is LMI?
Lender’s Mortgage Insurance (LMI) is a type of insurance you can expect to pay as a borrower if your Loan to Value (LTV) ratio—the home loan proportional to the property value—is above 80%.
LMI is used as a security by the lender in the event you default on a home loan payment. It’s typically a one-off payment and is calculated based on the property value and your LTV ratio. LMI rates also vary from lender to lender. It can potentially cost tens of thousands of dollars.
What Factors Affect How Much I Can Borrow for an Investment Property in Australia?
The amount you’re able to borrow on an investment property in Australia is influenced by a number of factors, including your citizenship status, serviceability, credit history and, most importantly, the lender’s own assessment of your financial situation.
Get a free Australian mortgage assessment today.
How Does My Citizenship Status Affect How Much I Can Borrow?
Firstly, let’s consider the role of your citizenship status. If you’re an Australian citizen (including expats), you’ll be eligible for the most competitive Loan to Value (LTV) rates. Here’s a rough outline of how LTV rates can differ depending on your citizenship status:
- Australian citizen living abroad: 95% + LMI, or 80%
- Australian permanent resident living abroad: 95% + LMI, or 80%
- Foreign national living abroad: 80%
As you can see, expats are generally entitled to the same home loan rates as Australian residents. Some lenders, however, may adjust their rates slightly to favour Australian residents. When this is the case, it’s usually due to the lender’s policy on foreign currency.
As an expat, you’ll likely be paying your loan in a foreign currency. This rarely influences your LTV rate, especially when using popular foreign currencies like USD, SGD, HKD and GBP.
Some lenders, however, may place restrictions on their borrowing limits for less common foreign currencies to protect themselves against fluctuating exchange rates.
This shouldn’t be a major issue if your chosen currency isn’t widely used; at the end of the day, lenders are more concerned about your ability to meet loan repayments, not the price of a foreign currency.
How Do My Finances Affect How Much I Can Borrow?
Your finances will play a large role in how much the lender decides to offer for your loan. To land an LTV of 80% or higher, you’ll first need to show that you can pay back those relatively high home loan payments each month by providing evidence of your income.
As a real estate investor, you may be more likely to be approved for a higher loan compared to applicants who plan to use the property to live in. That’s because banks will often take into account the rental income you’re likely to make on the property as part of your wider earnings.
How Does My Choice of Bank Affect How Much I Can Borrow?
Most banks in Australia lend between 60–80% LTV. Some provide loans of up to 95% LTV, including LMI. Of the “Big Four” banks in Australia, CBA, ANZ and NAB currently offer the maximum LTV rate of 80% with no LMI.
Whether you’ll be offered that magical 80% rate depends on your personal finances and, if you’re an expat, external factors such as fluctuating exchange rates and foreign tax rates.
Banks ultimately set their own rates and evaluate home loan applications as they see fit; where one bank approves an 80% LTV mortgage application, another could easily reject it.
How Do I Increase My Borrowing Power?
If you have an exemplary financial history, the lender will be more inclined to offer you a larger loan. You can improve your serviceability by paying any existing loans and reducing living expenses. You should also contact a mortgage broker to connect you with the best deals.
For lender’s, calculating the LTV is about assessing risk. Generally, they’ll take three different factors into consideration to establish an appropriate LTV:
- Your ability to pay back the loan based on income and expenses;
- Your credit score; and
- How much security you’re able to offer.
With that in mind, here are several strategies for increasing your borrowing power:
- Reduce living expenses
- Pay any outstanding loans
- Manage credit cards carefully
- Take a credit check before applying
If you’re interested to know how much a bank is likely to offer you, use our borrowing power calculator.
Commission as Income
There’s an important caveat for home loan applicants who make up a large chunk of their income from commission. Many lenders will only consider your base salary when reviewing your application and forecasting your ability to pay back the loan.
This can make your serviceability appear weaker than it really is if you earn significant money through commission. A mortgage broker can help fight your corner in this situation and secure an LTV rate that fits your real income.
Get a free Australian mortgage assessment today.
How Do I Find The Best Home Loan for an Investment Property in Australia?
It’s always best to contact a mortgage broker with access to a wide variety of lenders and home loan offerings. Odin Mortgage will help you secure a home loan with a competitive LTV rate that fits your finances and investment strategy.
Whether you’re an Aussie resident or expat, the best LTV rates you can land on a home loan for a residential investment property are 80% to 95% including LMI. How much the lender decides to offer you ultimately depends on their assessment of your financial situation.
With so much to consider here, we recommend talking to a mortgage broker to guide you through the process and help you find the best deal. If you’re weighing up a new investment property purchase and have any queries regarding home loans, don’t hesitate to contact us.