The property type you choose determines how much you can borrow, what rate you'll pay, and how lenders treat your application.
Lenders classify investment properties into distinct categories, each with different risk profiles, LVR thresholds, and pricing structures. A two-bedroom unit in a high-density block is assessed differently to a freestanding house, and that difference flows through to deposit requirements, ongoing costs, and how much rental income a lender will recognise. Your property type decision affects both upfront capital and long-term serviceability, so understanding how lenders view each category before you start searching is critical.
How Lenders Classify Investment Property Types
Lenders separate investment properties into three main categories: houses, units, and specialised dwellings. A house includes freestanding homes, semi-detached dwellings, and townhouses on separate title. A unit includes apartments, flats, and townhouses on strata title. Specialised dwellings cover serviced apartments, student accommodation, and properties with commercial elements.
The distinction between a townhouse on separate title and a townhouse on strata title matters. A townhouse with its own title is assessed as a house. A townhouse sharing a body corporate is assessed as a unit, with stricter LVR limits and additional scrutiny on body corporate health, sinking fund balances, and the number of units in the complex. Some lenders will not lend on blocks with more than 50 per cent non-owner-occupied units, or on buildings with ongoing defect claims or elevated special levies.
Units Versus Houses: Borrowing Capacity and LVR Limits
Most lenders cap investment loans on units at 90 per cent LVR, with LMI required above 80 per cent. Houses can often reach 95 per cent LVR depending on the lender and your income profile. At 85 per cent LVR, LMI on a unit is typically higher than on a house at the same LVR because the lender's insurer applies a higher risk weight to strata properties.
Consider an investor purchasing a unit valued at the suburb's median. With a 10 per cent deposit, the investor faces LMI, stamp duty, and legal costs. If the same investor were purchasing a house at a comparable price point with a 10 per cent deposit, the LMI premium would be lower, and some lenders would offer a slightly higher discount on the interest rate. The rate differential is often 0.05 to 0.15 percentage points, depending on the lender's current pricing.
Units also attract a serviceability adjustment. Most lenders apply a rental income shading factor, recognising a lower percentage of the rental income to account for vacancy and body corporate fees. On a unit, lenders typically recognise 75 to 80 per cent of the gross rental income. On a house, lenders may recognise up to 80 per cent. Combined with higher body corporate fees, this reduces the net income available to service the loan, which in turn reduces borrowing capacity.
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New Builds and Off-the-Plan Purchases: What Changed
Eligible new builds acquired after 12 May 2026 retain full negative gearing treatment, meaning losses can be deducted against all income, including salary. Established properties acquired after that date are subject to quarantining, where losses can only offset income from other residential properties from the 2027-28 income year onwards. New builds also allow investors to choose between the existing 50 per cent CGT discount and the new indexed cost base with a 30 per cent minimum tax rate when the property is eventually sold.
A new build must be constructed on previously vacant land or replace an existing property where the number of dwellings increases. A knock-down rebuild that does not increase dwelling numbers does not qualify. Once a new build has been occupied for more than 12 months, it loses the new build status for the next purchaser.
Off-the-plan purchases carry additional lender requirements. Most lenders require a revaluation at settlement. If the completed property values below the contract price, the lender will base the loan amount on the lower valuation, and the buyer must cover the shortfall. Some lenders also apply a longer settlement period threshold, requiring sunset clauses beyond 18 or 24 months to trigger additional scrutiny or a declined application. If you are considering an off-the-plan unit with a settlement period beyond 18 months, discuss the lender's revaluation policy and sunset clause limits before exchanging contracts. Investment loans for tech industry workers covers the broader application process and documentation requirements.
Townhouses on Strata Title: The Hybrid Assessment
Townhouses on strata title sit between units and houses in terms of lender treatment. They are assessed as units for LVR and pricing purposes, but lenders are more flexible on smaller complexes with strong sinking funds and low body corporate fees. A townhouse in a complex of six with minimal shared infrastructure and no lift or pool will typically receive better pricing and LVR treatment than a townhouse in a complex of 40 with aging common property and a history of special levies.
Lenders request a body corporate report or strata search on all strata-titled properties. The report discloses the sinking fund balance, administrative fund balance, any current or anticipated special levies, defect claims, and the percentage of owner-occupiers versus investors. A complex with less than 30 per cent owner-occupiers may be declined by some lenders, or attract a higher rate and lower LVR cap.
In our experience, townhouses on strata title in complexes with under 10 dwellings, no commercial element, and a sinking fund balance above the required amount are treated closer to houses than high-density units. The rental income shading and LVR cap still apply, but pricing is often within 0.05 percentage points of a house.
Serviced Apartments and Properties with Commercial Elements
Serviced apartments, student accommodation, and properties with a mandatory letting pool or hotel-style management agreement are classified as specialised or non-standard securities. Most mainstream lenders will not lend on these properties at all. Specialist lenders that do offer finance typically cap LVR at 70 per cent, apply higher interest rates, and do not recognise the rental income at the same level as a standard residential lease.
A serviced apartment with a five-year management agreement requiring the owner to participate in a rental pool is not assessed as a standard residential investment property. The income is treated as commercial or business income, which may require a different loan structure or evidence of other income sources to demonstrate serviceability. Some lenders will consider a serviced apartment on a case-by-case basis if the management agreement can be terminated within 12 months and the property can revert to a standard residential lease.
If you are considering a serviced apartment or a property with a commercial component, confirm the lender's position before making an offer. The deposit and settlement terms on these properties can also differ from standard residential contracts, particularly where the vendor is a developer or the property is part of a staged release.
How Property Type Affects Interest Rate Discounts
Investment loan pricing is layered. The base variable rate is set by the lender, and the discount you receive depends on the loan amount, LVR, property type, and your income profile. A house at 80 per cent LVR with a loan amount above $500,000 will typically receive a larger discount than a unit at the same LVR and loan amount. The difference is usually between 0.05 and 0.20 percentage points, depending on the lender.
Fixed rate pricing follows a similar pattern. Units on strata title attract a smaller discount on fixed rate products, particularly at higher LVRs. Some lenders also apply a minimum loan amount threshold for their most competitive fixed rates, which can exclude smaller unit purchases in lower-priced suburbs. Getting a lower interest rate outlines how to structure your application to access the largest available discount.
Expanding Your Portfolio: How Property Mix Affects Serviceability
When you hold multiple investment properties, lenders assess the portfolio as a whole. A portfolio with a mix of houses and units across different suburbs is viewed more favourably than a concentrated position in one building or one postcode. Lenders apply a portfolio overlay when the applicant holds three or more investment properties, which may include additional serviceability buffers or lower rental income recognition.
If you already own two units in the same suburb and are applying for a third investment loan, some lenders will reduce the recognised rental income on all three properties or apply a higher serviceability buffer. This can reduce borrowing capacity by 10 to 20 per cent compared to a portfolio with geographic and property type diversity. Expanding your property portfolio covers portfolio lending in detail, including how to structure ownership and loan accounts to preserve future borrowing capacity.
Interest-Only Loans and Property Type
Interest-only loans are common for investment properties because they reduce the monthly repayment and preserve cash flow. Most lenders offer interest-only periods of one to five years on both houses and units, but the LVR cap is lower on interest-only loans than on principal-and-interest loans. A lender that allows 90 per cent LVR on a unit with principal and interest repayments may cap interest-only loans on units at 80 per cent LVR.
Under APS 112, a long-term interest-only loan with an LVR above 80 per cent and an interest-only period exceeding five years is classified as non-standard, which increases the lender's capital requirement and typically results in higher pricing or a declined application. If you are seeking an interest-only loan on a unit with an LVR above 80 per cent, confirm the lender's policy on interest-only periods before lodging the application. Interest-only loans for tech industry workers explains how interest-only structures work and when they suit your circumstances.
Using Rental Income to Service the Loan
Lenders recognise a percentage of the rental income when assessing serviceability, but the percentage varies by property type and lender policy. On a house, most lenders recognise 80 per cent of the gross rental income. On a unit, recognition drops to 75 per cent. On a serviced apartment or non-standard property, recognition may fall to 50 per cent or the income may not be recognised at all.
Rental income is also adjusted for vacancy. Some lenders apply a vacancy rate assumption of 4 to 8 weeks per year, which reduces the annualised rental income used in the serviceability calculation. Body corporate fees, council rates, insurance, and property management fees are treated as ongoing costs and reduce the net income available to service the loan. On a unit with body corporate fees of $5,000 per year, those fees are deducted from the recognised rental income before the lender calculates your borrowing capacity.
If you are relying on rental income to support serviceability, request a rental appraisal from a licensed property manager before making an offer. The appraisal should be based on comparable leases in the same building or street, not on advertised rents. Lenders will request a copy of the signed lease or rental appraisal at the time of application, and they will use the lower of the appraised rent or the actual lease amount in their assessment.
Call one of our team or book an appointment at a time that works for you. We'll review the property type you're considering, confirm lender appetite and LVR limits, and structure your application to access the most flexible terms available.
Frequently Asked Questions
Can I borrow more for a house than a unit at the same price?
Yes, most lenders cap investment loans on units at 90 per cent LVR while houses can reach 95 per cent LVR depending on your income profile. Units also attract higher LMI premiums and slightly higher interest rates at the same LVR.
Do new builds still qualify for negative gearing?
Eligible new builds acquired after 12 May 2026 retain full negative gearing treatment, meaning losses can be deducted against all income including salary. Established properties acquired after that date are subject to quarantining from the 2027-28 income year onwards.
How much rental income will a lender recognise on a unit?
Most lenders recognise 75 to 80 per cent of gross rental income on units, compared to up to 80 per cent on houses. Body corporate fees, vacancy assumptions and property management costs further reduce the net income available to service the loan.
Are townhouses on strata title assessed as houses or units?
Townhouses on strata title are assessed as units for LVR and pricing purposes. A townhouse with its own separate title is assessed as a house, which typically results in higher LVR limits and lower interest rates.
Will lenders finance serviced apartments?
Most mainstream lenders will not finance serviced apartments or properties with mandatory letting pool agreements. Specialist lenders may offer finance at lower LVRs, typically capped at 70 per cent, with higher interest rates and reduced rental income recognition.
