Investment lending

One loan, or the next five years

Most investment lending conversations start with whether this purchase will get approved. That is the wrong frame if you intend to buy more than one property.

How this loan is structured affects how the next lender reads your position. Decisions that look neutral now, made because they were the default, can quietly close off options later. Getting the structure right on purchase one is considerably easier than unwinding it on purchase three.

How existing debt gets read

When you apply for your next loan, the lender assesses your existing commitments too. Two things matter more than people expect.

Existing loans are usually assessed at a higher rate than you are actually paying. Lenders apply a buffer to your current commitments as well as the new one, so your existing debt consumes more of your capacity than the real repayments suggest.

Rental income is generally shaded. Lenders typically count only a proportion of rent received, to allow for vacancy and costs. So an investment property that is cash flow neutral in reality may still reduce your borrowing capacity on paper.

The practical consequence is that borrowing capacity for a portfolio tightens faster than most people plan for. Knowing where that ceiling sits before you buy is more useful than discovering it when you are ready for the next one.

Structure decisions that are hard to unwind

Cross-collateralisation

This is where more than one property secures the same loan or set of loans. It often happens by default when you use equity in one property to buy another, particularly if both loans sit with the same lender.

It can simplify the initial application. It also ties your properties together. Selling one, refinancing one, or moving a single loan to another lender becomes more complicated, because the lender holds security over everything.

There are situations where it makes sense. It should be a decision you have made knowingly, not something you find out about later.

Using equity in your home

A common way to fund an investment deposit. Structuring it as a separate split, rather than simply increasing your existing home loan, generally keeps the borrowing for investment purposes clearly identifiable, which matters for record keeping and for your accountant.

How the borrowing is structured can affect the deductibility of interest. That is a tax question rather than a lending one, and it is worth raising with your accountant before you settle, not after.

Interest only, or principal and interest

Interest only keeps repayments lower during the term and is common with investment lending. It also means the balance is not reducing, and repayments step up when the interest only period ends.

Lenders often assess interest only loans more conservatively, and pricing can differ. It suits some strategies and not others. The right answer depends on your cash flow, your tax position, and what you plan to do with the property.

Which lender, and in what order

Lenders differ on how they treat rental income, existing debt, and portfolio exposure. Some are more accommodating early, others hold up better as a portfolio grows.

If you intend to buy more than once, the order in which you approach lenders matters. Using the most accommodating lender first can leave you with nowhere to go afterwards. That sequencing is one of the more useful things to plan deliberately.

The things that are not lending questions

Negative gearing, depreciation schedules, capital gains and ownership structure are tax matters, and your accountant is the right person for them. They interact with lending decisions, which is why it helps to have both conversations at roughly the same time rather than months apart.

I am not a financial adviser and do not give investment advice. What I can tell you is what is achievable from a lending perspective, how the structure affects your options, and what it means for the purchase after this one.

What I would want to look at

• Your existing loans, their structure, and which lenders hold them
• Whether any properties are currently cross-secured
• Your income, and how rental income sits alongside it
• Your equity position
• What you are planning after this purchase