Can Rental Income Be Used?
Yes, Australian home loan lenders usually include rental income when calculating your borrowing power, though they shade it by 10 to 30 percent for maintenance and vacancies.
Do lenders include rental income?
Yes, Australian lenders routinely accept rental income when assessing your borrowing capacity for a home loan. Whether you already receive rent from an existing investment property or plan to buy a new one, this cash flow is added to your PAYG household salary to help demonstrate your ability to service the mortgage repayments.
However, banks do not count 100 percent of your gross rental yield. To account for potential tenant vacancies, real estate management fees, council rates, and general maintenance costs, lenders apply a haircut known as shading. Most Australian credit providers shade rental income by 10 to 30 percent, generally accepting around 70 to 80 percent of the gross amount.
To verify this income during assessment, you will need to provide supporting evidence. Lenders typically request a formal lease agreement, recent property management statements, or your most recent ATO tax return showing rental schedules. For prospective investment purchases, a written rental appraisal from a licensed estate agent is standard requirement.
Different lenders treat rental income, negative gearing tax benefits, and short-term letting platforms differently. A Lonix broker can compare suitable lenders from our panel, present your financial profile accurately, and properly structure your loan application to optimise your borrowing power.
Related questions
- Do lenders accept rental income from short-term stays like Airbnb?
- Some lenders accept short-term rental income if supported by 12 to 24 months of ATO tax returns or booking statements. However, many shade this income more heavily than long-term leases due to fluctuating occupancy rates.
- How is prospective rental income proven for a new property purchase?
- Lenders require a written rental appraisal from a qualified real estate agent detailing the estimated weekly rent. The bank will then apply standard shading to that estimated figure in their serviceability calculation.
- Does negative gearing help increase my borrowing capacity?
- Yes, many Australian lenders factor in negative gearing tax benefits when calculating your serviceability. This reduces your projected tax liability, which can slightly increase your net calculated household income.
- What documentation is required to prove existing rental income?
- You generally need to supply a current signed lease agreement and two recent rental account statements from your managing agent. Alternatively, your latest ATO individual tax return with full rental schedules can be used.