Borrowing capacity is one of the most misunderstood parts of the mortgage process, particularly when a positively geared investment property enters the picture.
On the surface, it feels logical. More income should mean more borrowing power. But once lender calculators, income shading, and assessment buffers come into play, the answer becomes far less straightforward.
This is exactly where confusion around borrowing capacity tends to start.
Scenario: Same Income, Same Expenses, Different Outcome
Consider two borrowers with identical financial foundations.
Both earn $100,000 per year. Both have $50,000 in living expenses. On paper, they look exactly the same.
The difference is that one borrower also owns a positively geared investment property.
That property is valued at $600,000, has $300,000 of debt, and generates $10,000 net income each year. In real terms, that borrower has stronger cash flow.
So the obvious question arises.
Does the borrower with the positively geared investment property have greater borrowing capacity because their total income is higher? Or does the existing investment debt reduce borrowing capacity once lenders apply rental income shading and interest rate buffers?
Does a Positively Geared Investment Property Increase Borrowing Capacity?
The short answer is yes.
A positively geared investment property can increase borrowing capacity.
However, how much it helps depends entirely on the lender and how that lender treats both the rental income and the existing investment loan.
There is no universal borrowing capacity rule that applies across all banks.
Borrowing Capacity in Practice: What the Numbers Show
Using a servicing calculator from a major bank to keep the comparison simple, the results were clear.
The borrower without the investment property was able to borrow approximately $297,000.
The borrower with the positively geared investment property was able to borrow around $335,000.
That’s an increase of roughly $38,000.
The additional $10,000 of rental income helped, but not on a dollar-for-dollar basis. The existing debt and lender assessment rules tempered the benefit.
Why Borrowing Capacity Varies Between Lenders
This is where borrowing capacity becomes lender specific.
Some lenders take 100% of rental income from a positively geared investment property. Others only take 70-80%
Existing investment debt is assessed at higher interest rates than those actually being paid. Banks must apply a three percent buffer on top of the interest rate due to APRA requirements. Some non-bank lenders apply smaller buffers, often closer to one percent.
Income type also matters. Overtime, bonuses, and casual income may be shaded or excluded depending on the lender.
And then there are living expenses.
Private school fees, high health insurance costs, and discretionary spending can significantly reduce borrowing capacity, even when income looks strong on paper.
Not all expenses are treated equally in a lender’s calculator.
The Key Lesson About Borrowing Power and Positive Gearing
A positively geared investment property helps borrowing capacity.
But the lender’s calculator decides how much it helps.
There is no single borrowing capacity figure that applies to everyone. It’s lender specific and influenced by income treatment, debt buffers, expense assumptions and assessment policies.
This is why estimating borrowing capacity using an online calculator or a single lender’s tool is almost always unreliable and limited in scope.
For more information, listen to the Property Trio Podcast
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