How lenders assess rental income on an investment loan

Vacancy between tenants, letting fees, management fees, repairs and the risk that the tenant stops paying all reduce what the landlord actually receives. Rather than model each, lenders apply a haircut to gross rent and separately deduct fixed costs such as rates, insurance and strata. The shading percentage is a lender policy choice and moves capacity: on $40,000 of rent, 90 per cent gives $36,000 of income and 75 per cent gives $30,000, which can be the difference between an approval and a decline on a tight file.

Existing property with a tenant: the current lease and recent statements from the property manager, or bank statements showing the rent. Existing property self-managed: bank statements and the lease. New purchase: the valuer states market rent in the valuation and the lender uses that, sometimes cross-checked with a rental appraisal from an agent. Vacant property: market rent less a vacancy allowance, or excluded at conservative lenders. Property rented to family: market rent supported by an appraisal, and some lenders exclude it.

Airbnb and holiday letting income is variable, so lenders either shade it heavily, use a long-term rental equivalent, or exclude it. Twelve months of platform statements help. Rooming houses, student accommodation and serviced apartments attract similar caution and sometimes lower LVR as well. Commercial rent is assessed on the lease and the tenant, with its own rules.

Some lenders add back the tax benefit of a negatively geared property to the borrower's income, which increases capacity; many do not. Interest only repayments are assessed at principal and interest over the remaining term at the buffered rate, which is why a portfolio that is cash flow positive in reality can fail serviceability on paper. A specialist matches the portfolio to the lender whose assessment treats it best.