Most homeowners looking at their first investment property focus on whether they have enough equity for a deposit. That's the right question, but it's about halfway through the list of what a lender is actually checking. Here's how it actually works, using real numbers.
Equity is the difference between what your property is worth and what you owe on it. But not all of that equity is accessible. Most lenders will let you borrow up to 80% of your property's value without requiring Lenders Mortgage Insurance (LMI). Whatever sits above that 80% mark, after subtracting your current loan balance, is what's generally referred to as usable equity.
As a general starting point, a homeowner in Southeast Queensland typically needs at least $150,000-$200,000 in usable equity to make an investment property purchase viable once deposit, purchasing costs, and serviceability are all considered.
Take a homeowner in the Redlands area with a property currently valued at $900,000 and a remaining mortgage of $450,000. Property value: $900,000 80% of property value: $720,000 Current loan balance: $450,000 Usable equity: $270,000
That $270,000 could be drawn on as a deposit and to cover purchasing costs, stamp duty, legal fees, and so on, for an investment property. In the bayside Southeast Queensland market, where properties at the entry-level investment tier have moved considerably over recent years, this kind of equity position puts a first purchase within reach for many homeowners. But getting to settlement involves more than having the numbers stack up on paper.
Once you've established that the equity exists, lenders move to serviceability, can you actually afford to carry both loans? This is where many first-time investors find the process more complex than they anticipated.
Serviceability is assessed using your gross income, minus your living expenses, minus your existing debt commitments. Lenders use a stressed interest rate, generally higher than the current rate on offer, to buffer against future rate changes. The result is a borrowing capacity figure that can feel meaningfully lower than what common sense might suggest.
Rental income from the investment property counts toward your income, but not at face value. Most lenders shade it to 75-80% of the actual rent, to account for vacancy periods, management fees, and maintenance. If the property you're buying is expected to rent for $600 per week, a lender will typically use $450-$480 per week in their calculations. That gap matters when you're working at the edge of your borrowing capacity.
Income shading applies more broadly than just rental income. Many lenders will also shade second job income, overtime, or allowances. The standard approach is a starting point, not a fixed rule across all lenders, and this is where the lender-matching process becomes genuinely important. Some lenders will accept 100% of a second job income or regular overtime, and some will give full weight to allowances that others discount. The tradeoff is often that those lenders sit outside the major banks and carry a slightly higher interest rate. For the right borrower, that premium is a calculated tradeoff, it can unlock borrowing capacity that simply isn't available through a big four bank. Rate is not the only number worth optimising.
This catches a lot of first-time investors off guard. The value you believe your property is worth and the value a lender's valuer assigns to it are often not the same number. Lenders order their own valuation, and the result feeds directly into your usable equity calculation.
Using the same Redlands example, if the property you believe is worth $900,000 comes in at $850,000 on a bank valuation, the numbers shift considerably.
That's a $40,000 reduction in accessible equity based on a $50,000 valuation gap. It doesn't necessarily kill a purchase, but it changes what you can afford to buy and may affect whether LMI becomes a factor. Going in with realistic expectations about valuation outcomes, rather than assuming the market appraisal from your agent will be matched by the bank, saves a lot of frustration at an advanced stage of the process.
One of the most practical things you can do before approaching a lender is take stock of your existing liabilities. Credit cards, personal loans, car finance, and BNPL balances all count against you, not just their current outstanding balance, but their credit limits in some cases.
Everyone's situation is different here, and it's worth discussing with your broker before making changes to existing credit facilities. A credit card with a $15,000 limit that you rarely use still reduces your assessed borrowing capacity, because lenders model what would happen if you drew that limit fully. Paying down or closing liabilities before you apply can meaningfully shift the outcome, but closing a credit card only makes sense if you genuinely don't need it. If that limit is your financial safety net for irregular expenses or emergencies, removing it to improve your borrowing position isn't a clean win. Lenders also aren't naive, a card closed the month before an application tells its own story. The honest question to ask yourself is whether you'd miss it if it were gone. If the answer is no, closing it well before you apply is a legitimate move. If the answer is yes, that's a conversation worth having with your broker before you act on it.
Some borrowers have a second job or have taken on additional work with an eye toward qualifying for a larger loan. That can genuinely help, but lenders won't accept income they can't verify. Most require six to twelve months of demonstrated history in that role before they'll count it, and even then, as noted above, many will shade it rather than taking it at full value.
It also needs to be sustainable. A lender isn't just approving your loan for today, they're assessing whether you can carry it over the life of the loan. Income that was picked up temporarily to get across a serviceability line and then dropped isn't a strategy; it's a risk. If a second income is genuinely part of your household picture and you've been doing it long enough to demonstrate stability, it's worth discussing with a broker who knows which lenders will give it proper weight. If it's new, the honest answer is that you'll need to let the history build before it materially changes your position.
When a broker recommends a lender outside the major banks, the natural assumption is that something hasn't worked out, that you're settling for a second-tier option. That framing misses the point.
Non-major lenders often assess income more generously, accept income types the big four won't, or are simply willing to lend to borrower profiles that fall outside the tight credit boxes the major banks operate within. The reason they exist, and the reason brokers use them, is precisely because different lenders suit different borrowers. The interest rate premium is the cost of accessing a lender whose policy actually fits your situation. For some borrowers, the alternative is not getting a loan at all, or getting one that's substantially smaller than they need.
This is one of the less-discussed aspects of what a broker actually does. Finding the lowest rate is straightforward. Matching the structure of your income, liabilities, and borrowing needs to the lender whose policy works best for you, that's a different exercise.
It's worth building a clear picture of where you actually stand. That means knowing your current loan balance, your property's likely valuation, your gross household income, every existing debt commitment and credit limit, and a realistic rental estimate for the type of property you're considering.
If you're based in the Redlands, Brisbane or Southeast Queensland and want to understand what your numbers actually support before approaching a lender, that's exactly where this conversation starts.
The equity is usually only one part of what determines whether a deal gets approved. Understanding your full position, serviceability, existing debts, income structure, before you start the process means you're not finding out at settlement that something doesn't stack up.
Lending on Coastal is a credit representative (576348) of Broker ACL Pty Ltd ACN 681 761 375 (Australian Credit Licence 563763).
Any reference to tax treatment of investment property costs or income is general in nature. Speak with your accountant for advice specific to your situation.
This content is general information only and does not constitute financial, legal, or tax advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on any information contained here, you should consider its appropriateness having regard to your circumstances and seek independent advice from a qualified financial adviser, mortgage broker, or accountant. Credit products are subject to lender approval and individual assessment criteria.
Figures and rate references in this post reflect general market practice at the time of writing and are subject to change as lender policies evolve. This post should be reviewed periodically to ensure ongoing accuracy.
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