Do you know what changed for investment loans in 2026?

The rules changed in May, and your strategy needs to catch up

If you're planning to buy an investment property in Charlestown, the legislation governing residential property investment changed significantly in mid-2026. Net rental losses on properties purchased after 7:30pm on 12 May 2026 can no longer be offset against your salary or wage income from 1 July 2027. Capital gains tax treatment is also changing. Negative gearing rules for residential investment properties held at 7:30pm AEST on 12 May 2026, including those under contract awaiting settlement, remain unchanged until the property is sold, allowing net rental losses to be deducted against other assessable income including salary and wages. The dividing line between the old rules and the new is whether you held the property or had a binding contract in place by that May date.

The practical outcome is that income investors now need to calculate returns differently. If you're looking at a two-bedroom unit near Charlestown Square or a house closer to Glendale, rental yield matters more than it did twelve months ago because the tax subsidy that used to absorb early-year losses has been quarantined for most buyers.

What counts as a new build under the exemption

Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases, but knock-down rebuilds that do not increase dwelling numbers and substantial renovations are not eligible. A property is only considered a new build if it increases the housing supply. Replacing a single dwelling with another single dwelling does not qualify, even if the new structure is brand new.

Consider a scenario where you purchase a block in the broader Lake Macquarie area, subdivide it and build two townhouses. That development qualifies as an eligible new build because the number of dwellings increased. You retain access to negative gearing under the existing rules, and at the time of sale, you can elect to use either the 50 per cent capital gains discount or cost base indexation with a 30 per cent minimum tax rate. If instead you bought an older home, demolished it and built a single replacement dwelling, that property would be subject to the new quarantine rules from 1 July 2027 because dwelling numbers stayed the same.

How lenders assess investor loans now

From 1 February 2026, each ADI may fund no more than 20 per cent of new investor loans at a debt-to-income ratio of 6 times or greater, and APRA requires ADIs to assess a new borrower's capacity to service a residential mortgage at an interest rate at least 3 percentage points above the loan product rate. Both limits apply when you submit a new application. If you already hold an investor loan and are not refinancing or topping up, neither restriction affects you.

The debt-to-income cap does not prohibit lending above six times income. It sets a portfolio ceiling for each lender. In our experience, applicants with strong income, minimal existing debt and a deposit above 20 per cent still secure approval at higher multiples, but capacity is no longer unlimited. The serviceability buffer means that even if the variable rate you are quoted is 6.2 per cent, the lender will test your ability to repay at 9.2 per cent or higher. Rental income is included in the assessment, but most lenders apply a haircut of 20 per cent to account for vacancy and maintenance costs.

Interest-only loans and capital treatment

Investor loans and interest-only loans generally attract higher risk weights than owner-occupied principal-and-interest loans at the same LVR, and a long-term interest-only residential loan must be classified as non-standard where the LVR exceeds 80 per cent and the contractual interest-only period is greater than 5 years or is unspecified. The higher risk weight translates to a higher funding cost for the lender, which in turn may result in a higher interest rate for you.

Interest-only terms remain available for investment loans, typically up to five years. The structure keeps your repayments lower during the interest-only period, which can improve cash flow if you are servicing multiple properties or holding the asset while waiting for capital growth. Once the interest-only term ends, the loan reverts to principal and interest, and repayments increase. If you plan to refinance before reversion, make sure you account for the debt-to-income cap and serviceability buffer in place at that future date, not the settings that applied when you first borrowed.

LVR, LMI and deposit requirements

ADIs generally require LMI on residential loans where the LVR exceeds 80 per cent. On investment loans, the premium is higher than on owner-occupier loans at the same LVR. Premiums are calculated on a sliding scale, and the cost is typically capitalised into the loan amount rather than paid upfront, though you can choose to pay it separately.

If you already own property and have built equity, you can leverage that equity to fund the deposit on your Charlestown investment without needing to save additional cash. Equity release requires a valuation and is subject to the lender's maximum LVR across all secured properties. Where you have multiple loans secured over the same property in sequential ranking, the loan amounts are aggregated for LVR purposes. That means a first mortgage at 70 per cent LVR and a second mortgage at 10 per cent LVR is treated as 80 per cent combined, not as two separate lower-risk exposures. Understanding how to structure borrowing capacity across a portfolio is one area where broker advice adds measurable value.

Rental income, vacancy rates and cash flow

Lenders assess rental income by applying a discount to the market rent, usually 20 per cent. If a two-bedroom unit in Charlestown achieves rent of $500 per week, the lender will typically include $400 per week in your serviceability calculation. The discount accounts for periods of vacancy, maintenance and management costs. The actual vacancy rate in the suburb, tenant demand and proximity to Charlestown Square, schools and the western rail corridor all affect how quickly you can re-let a property, but lenders apply a blanket percentage regardless of location.

Because net rental losses on properties purchased after mid-May 2026 will be quarantined from 1 July 2027, you need the rental income to cover or nearly cover the loan repayment, strata fees, council rates, insurance and property management. If the property runs at a loss, you can carry that loss forward to offset future rental income or future capital gains on residential property, but you cannot use it to reduce your tax on salary or wages. Cash flow discipline replaces tax relief as the primary risk control.

Capital gains tax from 1 July 2027

From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships is replaced for affected assets with cost base indexation using the Consumer Price Index and a minimum 30 per cent tax rate on real capital gains. For properties purchased after mid-May 2026, gains accruing after 1 July 2027 are taxed under the new system. If you bought before that date, gains accruing before 1 July 2027 remain eligible for the existing 50 per cent discount, and you can either obtain a market valuation as at 1 July 2027 or use an ATO apportionment formula to split the gain.

Indexation reduces the nominal gain by adjusting your cost base for inflation. The 30 per cent minimum rate applies to the indexed gain and may result in a higher tax liability than the current discount method if your marginal rate is below 30 per cent or if inflation is low. Investors purchasing eligible new builds retain the option to elect the 50 per cent discount or the indexed method at the time of sale, giving you flexibility to choose the method that produces the lower tax.

Charlestown and the Lake Macquarie investor market

Charlestown sits within the Lake Macquarie local government area and is one of the region's established retail and residential hubs. Proximity to Charlestown Square, medical facilities, the TAFE campus and regular rail services to Newcastle and Sydney underpin tenant demand. The suburb attracts a mix of renters including hospital staff, retail workers, students and families who want access to schools and services without paying Newcastle premiums.

Investment stock in the area includes older brick units near the square, updated villas closer to Kahibah and Whitebridge, and newer townhouse developments on the western fringe. Body corporate fees on strata properties vary widely depending on the age of the building, the number of units in the complex and whether the scheme includes a pool or lift. Those fees are a claimable expense, but they also reduce your net rental return and need to be factored into your cash flow projection before you commit.

Variable or fixed rate for an investment loan

Most lenders offer both variable and fixed rate options on investment loans, and some allow a split where part of the loan is fixed and part remains variable. Variable rates give you full access to offset and redraw facilities, the ability to make extra repayments without penalty, and the flexibility to refinance without break costs. Fixed rates lock in your repayment for the fixed term, which can provide certainty if you are managing cash flow across multiple properties, but break costs apply if you repay or refinance during the fixed period.

Interest rate discounts are typically smaller on investment loans than on owner-occupier loans, and discounts narrow further as your LVR increases. If you are borrowing at 90 per cent LVR with LMI, expect a smaller discount than a borrower at 70 per cent LVR. The difference in rate can be 0.20 to 0.50 percentage points depending on the lender and your overall credit profile.

When refinancing makes sense

An investment loan refinance can deliver a lower rate, release equity for further purchases, or consolidate debt to improve serviceability. If your property has increased in value since purchase or you have paid down the loan, your LVR will have improved, and you may now qualify for a lower rate or a higher loan amount without paying LMI again.

Refinancing also allows you to switch from principal and interest to interest-only, or vice versa, depending on where you are in your investment cycle. Keep in mind that a refinance is treated as a new loan application, so the current serviceability buffer, debt-to-income cap and lender appetite all apply. If your circumstances have changed since the original approval, such as a reduction in income, an increase in other debt, or a higher number of dependents, you may not qualify for the same loan amount you hold now.

Call one of our team or book an appointment at a time that works for you. We'll walk through your scenario, show you which lenders are lending on investment property in Charlestown right now, and make sure your loan structure aligns with the new rules and your long-term strategy.

Frequently Asked Questions