Why Should Investment Deposits Be Larger Than Owner Loans?

Investment Deposits Start at 10%, Not 5%

Lenders treat investment property differently from your home because the risk profile is different. Most lenders require a minimum 10% deposit for investment property loans, compared to as low as 5% for some owner-occupier loans. That extra 5% is not negotiable across most of the market. A few lenders will consider a lower deposit if you already own property with usable equity, but even then, you're borrowing at a higher loan-to-value ratio and the cost will reflect that.

Consider a buyer looking at an investment unit in Pakenham. If they have saved a 5% deposit and approach a lender expecting the same treatment as a first home buyer, they'll be declined outright by most institutions. The reason comes down to capital requirements under banking regulations. Investment loans attract higher risk weights under prudential standards, which means banks hold more capital against them. That cost gets passed to you in the form of stricter deposit requirements and higher interest rates.

The difference becomes more pronounced when you add lenders mortgage insurance into the picture. LMI premiums for investment loans are calculated on a steeper scale than owner-occupier loans at the same LVR. If you're borrowing with a 10% deposit, you're already paying a premium in the thousands. Drop below that threshold and the few lenders who will consider it will charge significantly more again.

Why 20% Deposit Is the Threshold That Changes Everything

Once your deposit reaches 20%, you avoid LMI entirely. For investment loans, that threshold matters even more than it does for owner-occupier lending. The difference in upfront cost between a 10% deposit and a 20% deposit on a property valued at the median can be $15,000 to $20,000 in LMI premiums alone, depending on the lender and loan amount.

Beyond the cost saving, a 20% deposit opens access to more competitive investment loan products. Some lenders reserve their lowest investor interest rates for borrowers who bring at least 20% equity to the table. Others will offer features like offset accounts or longer interest-only periods only when the LVR is 80% or below. If your strategy relies on cash flow management or tax-effective structuring, those features matter.

In our experience, buyers who stretch to reach a 20% deposit rather than proceeding at 10% often find themselves in a stronger position within 18 months. The combination of lower repayments, better loan features and no LMI cost means more of the rental income can be directed toward the next deposit or toward paying down other debt.

Equity From Your Home Can Replace Cash Deposits

If you own property already, you may be able to use equity in that property instead of saving cash. Lenders will allow you to borrow against your existing home to fund the deposit and costs on the investment purchase. The way this works is you refinance or top up your existing loan, then use the released funds as your deposit.

The catch is that lenders still assess your total borrowing against the same serviceability rules. From 1 February 2026, each lender can fund no more than 20% of new investor loans at a debt-to-income ratio of 6 times or greater. If your combined borrowing across both properties pushes you over that threshold, you may find approval harder to secure even if you have the equity available. That's particularly relevant for borrowers with moderate incomes who are trying to build a portfolio quickly.

As an example, someone earning $90,000 a year with an existing home loan of $400,000 and no other debt might be able to service an additional $140,000 investment loan at current variable rates, assuming rental income covers part of the repayment. But if they wanted to borrow $200,000 for a higher-value investment property, their total debt would sit above six times income and they would likely need a larger deposit or a co-borrower to meet serviceability.

Interest-Only Loans Require Lower LVRs at Some Lenders

Many investors choose interest-only repayments to improve cash flow and maximise tax deductions. Not all lenders offer interest-only terms at the same LVR as principal-and-interest loans. Some cap interest-only lending at 90% LVR, others at 80%, and a few will go to 95% but only for principal-and-interest investment loans.

A long-term interest-only residential loan must be classified as non-standard where the LVR exceeds 80% and the contractual interest-only period is greater than 5 years. That classification affects how the lender prices the loan and whether they will approve it at all. If you're planning to use an interest-only structure as part of your investment strategy, you need to know upfront whether your deposit size will allow it.

In a scenario where a buyer in regional Victoria has a 15% deposit and wants a 10-year interest-only term, they'll find most lenders either decline the application or convert the loan to a standard 5-year interest-only term with principal and interest repayments after that. The solution is either a larger deposit or a shorter interest-only period. Both options change the cash flow and tax outcome, so it's worth modelling before you commit to a purchase price.

Negative Gearing Rules Now Depend on When You Buy

For properties acquired on or after 7:30pm AEST on 12 May 2026, net rental losses can only be offset against other residential rental income from 1 July 2027. That means if you're buying an investment property now with the intention of offsetting the loss against your wage income, you can only do that until 30 June 2027. After that, the loss is quarantined and carried forward.

This changes the deposit question in a subtle but important way. If you're relying on negative gearing to make the investment affordable in the first few years, you now have a limited window to benefit from that tax treatment. A smaller deposit means higher loan repayments and higher interest costs, which increases the size of the loss you'll be carrying forward rather than claiming each year. A larger deposit reduces the loss and the amount you'll be warehousing until you have other rental income or sell the property.

Properties classified as eligible new builds are exempt from the quarantining rule. Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. If you're choosing between an established property and a new build, the deposit size may influence which option delivers a better tax outcome over the medium term. You can discuss your borrowing capacity and how the new rules affect your structure when you speak with a broker.

What Happens If Your Deposit Is Below 10%

A handful of lenders will consider investment loans with deposits below 10% if you have a guarantor or if you're using equity from another property and the combined LVR across both securities stays within their risk appetite. These are not standard products and they come with conditions.

Guarantor arrangements for investment lending are less common than for owner-occupier loans because the guarantor is taking on risk for an asset they won't live in and won't directly benefit from. Most parents or family members who act as guarantors are doing so to help someone into their first home, not to help them build a portfolio. That limits the pool of people willing to take on that exposure.

If you're using a guarantor, the lender will assess their income, assets and existing liabilities as part of the approval. In some cases, they'll also require the guarantor to obtain independent legal advice before signing. That adds time and cost to the process. If your deposit is below 10% and you don't have a guarantor or sufficient equity elsewhere, you're looking at a very short list of lenders and higher costs across the board.

For most buyers, the practical answer is to wait until you've saved or built equity to at least the 10% threshold, and ideally to 20%. Forcing a purchase with insufficient deposit rarely leads to a stronger financial position 12 months later. The combination of higher interest rates, higher LMI, limited product choice and reduced cash flow makes it harder to hold the property through vacancy or rate rises.

How Stamp Duty and Other Costs Affect Your Deposit Strategy

Stamp duty in Victoria is calculated on a sliding scale and is not deductible for investment property. If you're purchasing in Melbourne's outer growth corridors or regional centres like Bairnsdale, the duty bill will typically sit between $20,000 and $35,000 depending on the purchase price. That's on top of conveyancing, building and pest inspections, and lender establishment fees.

Some buyers assume they can roll all these costs into the loan. You can't. Lenders calculate LVR based on the property's purchase price or valuation, whichever is lower. Stamp duty and other settlement costs need to be funded separately. If you're putting down a 10% deposit, you also need to have another 5% to 7% available in cash or usable equity to cover costs.

When we see a buyer with exactly 10% saved and no buffer, the conversation shifts to whether they should proceed now or wait another few months to build that buffer. Proceeding without it means either borrowing from family, adding personal debt, or reducing the deposit below 10% and losing access to the majority of lenders. None of those options improve your position. A few extra months of saving can mean the difference between approval and decline, or between a manageable loan and one that leaves no room for vacancy or repairs.

Call one of our team or book an appointment at a time that works for you. We'll review your deposit, your borrowing capacity and the loan features that suit your investment strategy, then connect you with lenders who will actually approve the structure you're planning.

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