Why Property Investment Loans Matter for Frankston Buyers

An investment loan is structured differently to an owner-occupier mortgage, and those differences directly affect how much you can borrow, what you pay each month, and how the property performs financially.

Frankston's rental market has tightened over recent years as demand from both tenants and investors has risen. The suburb sits 40 kilometres south of Melbourne's CBD, with established housing stock, access to the beach, and rail connections that attract renters looking for affordability outside the inner suburbs. If you're considering investment property finance, the loan structure you choose will influence both your serviceability and your tax position, particularly under changes that came into effect from mid-2026.

How Investment Loan Serviceability Differs from Owner-Occupier Lending

Lenders assess investment loan applications by adding a 3.0 percentage point buffer to the loan interest rate and applying an assumed rental income figure that's usually discounted by 20 per cent to account for vacancy and maintenance costs. Your borrowing capacity is lower than it would be for an owner-occupier loan at the same income level because lenders apply higher risk weightings to investor lending and require proof that you can service the loan even if rental income drops or interest rates rise.

Consider a buyer earning $95,000 annually who wants to purchase a two-bedroom unit in Frankston with an established dwelling. The lender will assess repayments at the loan rate plus 3.0 percentage points, and any rental income will be shaded by 20 per cent. If the unit generates $450 per week in rent, the lender will use $360 per week in the serviceability calculation. The buyer's other commitments, including car loans, credit card limits, and living expenses, are also factored in. In this scenario, the borrowing capacity might sit around $420,000 to $450,000, depending on deposit size and other debts, compared to $500,000 or more if the same buyer were applying for an owner-occupier loan.

Debt-to-income lending limits now apply separately to investor and owner-occupier lending. From February 2026, lenders can write no more than 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings across all properties and other debts exceed six times your gross income, you may find fewer loan options available, or you may need to reduce your loan amount or increase your deposit to meet lender policy.

Deposit Requirements and Lenders Mortgage Insurance for Investment Property

Most lenders require a minimum 10 per cent deposit for investment property, though some will lend at higher loan-to-value ratios if you're willing to pay Lenders Mortgage Insurance. LMI premiums on investment loans are calculated on a sliding scale based on the loan amount and LVR, and they're generally higher than the equivalent premium for an owner-occupier loan because investment lending carries higher risk weighting under the prudential framework.

If you're purchasing an investment property with a deposit of less than 20 per cent, LMI will usually apply. The premium is a one-off cost, and it can be capitalised into the loan or paid upfront. Stamp duty may also be payable on the LMI premium depending on your state or territory, though in Victoria this duty was abolished from July 2018.

You can sometimes avoid LMI by using equity in an existing property as additional security, provided the combined LVR across both properties stays within lender policy. This approach requires a valuation on the existing property and cross-collateralisation of the securities, which means both properties are held as security for both loans. Some buyers prefer to keep securities separate to maintain flexibility if they want to sell or refinance one property independently in future.

Interest-Only Repayments and Cash Flow Management

Investment loans are commonly structured with an interest-only period, typically between one and five years, to reduce monthly repayments and improve cash flow. During the interest-only period, you pay only the interest component of the loan, and the principal balance does not reduce. After the interest-only period ends, the loan reverts to principal-and-interest repayments, and the monthly cost increases.

Interest-only lending is treated as higher risk under prudential standards. Where the LVR exceeds 80 per cent and the interest-only period is longer than five years or unspecified, the loan is classified as non-standard, which increases the capital the lender must hold against it and typically results in a higher interest rate or stricter serviceability assessment.

In our experience, buyers who choose interest-only repayments do so because they want to direct surplus cash flow toward other investments, pay down higher-interest debt such as owner-occupier mortgages, or manage short-term affordability while building a property portfolio. The repayments revert to principal-and-interest at the end of the interest-only term, so it's important to factor that increase into your long-term budget.

Fixed and Variable Rate Choices for Investor Borrowers

Investor interest rates are typically priced 0.30 to 0.60 percentage points higher than equivalent owner-occupier rates, reflecting the higher capital costs lenders incur under the prudential framework. You can choose a variable rate, a fixed rate for a set term, or split your loan between the two.

Variable rate investment loans allow unlimited additional repayments and access to offset accounts, which can reduce the interest you pay over time and give you flexibility to draw on funds if needed. Fixed rate loans lock in your repayment amount for the fixed term, but they generally don't allow additional repayments beyond a small annual threshold, and offset accounts are rarely available. If you break a fixed rate loan early, you may incur break costs that can run into thousands of dollars depending on the movement in wholesale interest rates since you fixed.

Some buyers split their loan, fixing a portion to provide certainty over repayments and leaving the remainder on a variable rate with an offset account. This approach can balance stability and flexibility, particularly if you expect your income or expenses to fluctuate over the coming years.

Tax Changes Affecting Investment Property Purchased After May 2026

From the 2027-28 income year, losses from established residential investment properties purchased after 7:30pm AEST on 12 May 2026 can only be deducted against income from other residential properties, including capital gains on residential property sales. Excess losses can be carried forward to future years and used when you have residential property income to offset.

If you purchased an established property in Frankston after that date, and your interest and holding costs exceed your rental income, you can no longer deduct that loss against your salary or other non-property income. This changes the after-tax cash flow of the investment. Consider a buyer who purchases a unit generating $23,400 in annual rent and incurring $28,000 in interest and other deductible costs. The $4,600 annual loss can be carried forward and used to reduce tax on future rental income or on a capital gain when the property is sold, but it won't reduce the buyer's tax payable on their salary in the year the loss occurs.

Properties held at 12 May 2026, including those under contract at that time, continue to allow full deductibility of losses against all income. New build properties purchased after 12 May 2026 also retain full negative gearing benefits, provided the dwelling was constructed on previously vacant land or the number of dwellings on the site increased as a result of the development. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify.

From 1 July 2027, capital gains tax treatment also changes. The 50 per cent CGT discount is replaced with cost base indexation and a 30 per cent minimum tax rate on real gains accruing after that date. For properties owned before 1 July 2027, gains are split, with the pre-July 2027 portion taxed under the current rules and the post-July 2027 portion taxed under the new rules. Buyers of eligible new builds can choose between the old 50 per cent discount and the new indexed treatment when they sell.

Location Considerations for Frankston Investment Property

Frankston's rental market is driven by a mix of families, singles, and retirees, with demand concentrated around proximity to the train station, Frankston Hospital, and the foreshore. Two-bedroom units closer to the CBD and station precincts tend to attract higher rental yields relative to purchase price, while three-bedroom houses in areas like Frankston South and Karingal appeal to families looking for space and school access.

Vacancy rates in Frankston have remained low relative to Melbourne's average, which supports rental income stability, though this can shift with changes in local employment, interest rates, or new housing supply. When assessing an investment loan application, lenders will typically use a standard rental income assumption or request a rental appraisal from a licensed property manager to verify the income you've estimated.

Body corporate fees apply to units and townhouses, and they vary widely depending on the age and condition of the building, whether there's a pool or lift, and how much the owners corporation has set aside for maintenance. These fees are deductible but reduce your net rental income, so they should be factored into your cash flow projections before you commit to a purchase.

Structuring Your Investment Loan Application

When you apply for an investment property loan, lenders will require proof of savings for your deposit, evidence of rental income if you're refinancing or already hold investment property, and a clear picture of your income, expenses, and other debts. Lenders also assess your tax returns, particularly if you're self-employed or earning rental income from other properties, to verify your borrowing capacity.

If you're using equity from an existing property, you'll need a valuation, and the lender will assess serviceability based on the total debt across both properties. Some lenders allow you to port pre-approvals for investment loans, though conditions and timeframes vary, and rates may change between pre-approval and settlement.

If you're purchasing a property that will be tenanted immediately, you can sometimes use the lease agreement as evidence of rental income, though lenders will still shade the income by 20 per cent in their assessment. If the property is vacant, lenders will rely on a rental appraisal or use a default figure based on comparable properties in the area.

Call one of our team or book an appointment at a time that works for you. We work with a panel of lenders across Australia and can structure your investment property finance to suit your deposit, income, and long-term property strategy, including how recent tax changes apply to your situation.

Frequently Asked Questions