Investor loan applications dropped 20% in the weeks after the May federal budget announced plans to restrict negative gearing and capital gains tax concessions to new builds only. By June, the decline was confirmed across multiple lender books. Now the banks want those borrowers back, and they’re loosening the dials to make it happen.
Longer loan terms, up to 40 years in one case, lower serviceability buffers at specialist lenders, and bigger behind-the-scenes rate discounts for brokers are all on the table. The pitch is clear: if the budget cut your borrowing capacity by 20-30%, lenders will find another lever to pull.
The question is whether this is rational competition or the kind of credit easing that looks smart today and amplifies the downturn later.
What lenders are offering
One major lender launched a 40-year investor loan term in July, paired with up to ten years of interest-only repayments without requiring reassessment during that period. The structure preserves cashflow in the short run, but it also means principal reduction starts later and total interest cost climbs.
Some non-bank and specialist lenders are using serviceability buffers of 1-2 percentage points above the loan rate, compared to the 3-point buffer APRA-regulated banks typically apply. For an investor assessed at 6.5% instead of 8%, that difference can translate to tens of thousands in additional borrowing capacity, enough to close the gap the budget changes opened.
Brokers report rate discounts are also deeper than they were six months ago, especially for borrowers with loan-to-value ratios under 50%. One Adelaide broker said business development managers are calling more frequently and offering better pricing to win deals, a reversal from the tighter stance earlier in the cycle.
Why this is happening now
Investor loan volumes collapsed in the immediate aftermath of the budget announcement. Brokers described the shift as sudden: investors who had been actively searching in April and early May simply stopped. Borrowing capacity fell because the tax changes reduced after-tax cashflow projections, which flow directly into serviceability calculations.
Lenders are still in the business of writing loans, and investor lending is a material part of most books. When one segment drops by a third, product teams start looking for ways to bring it back without waiting for policy to reverse.
The longer loan terms and lower buffers are both ways to increase borrowing capacity without changing the underlying interest rate or LVR requirements. They work within existing credit frameworks, but they shift risk.
The trade-offs
A 40-year loan term means smaller monthly repayments, which helps serviceability on paper. It also means slower equity build and higher total interest cost. A borrower who takes out $600,000 at 6.5% over 40 years will pay roughly $340,000 more in interest than the same loan over 30 years, assuming no extra repayments.
For investors relying on capital growth to make the numbers work, that’s a bet that prices will rise enough over the next decade to offset the cost. If prices stall or fall, the longer term just locks in more debt for longer.
Lower serviceability buffers create a similar dynamic. Assessing a borrower at 6.5% instead of 8% assumes the borrower can manage repayments if rates rise to that level. If rates go higher, or if rental income drops, or if the borrower’s employment changes, the margin for error is thinner.
APRA flagged concerns about overstretched investor lending earlier this year, particularly where cashflow relies heavily on assumptions about rent growth and capital appreciation. The regulator’s focus was on loans where debt serviceability depends on optimistic projections rather than current income. Extending loan terms and lowering buffers doesn’t remove that risk; it redistributes it.
The catch
Longer loan terms and lower buffers help investors qualify for larger loans today, but they also increase exposure if the market turns. A borrower locked into a 40-year term at peak prices with minimal equity build faces a longer recovery period if values drop. The flexibility is real, but so is the downside.
Who benefits and who doesn’t
Investors with significant equity, stable income, and a margin for error can use these products strategically. A borrower refinancing with an LVR under 50% who takes a lower rate and uses the cashflow to pay down principal faster is using the product as a tool, not a crutch.
First-time investors stretching to meet borrowing minimums or relying on the longer term to make repayments affordable are in a different position. If rental vacancies rise, interest rates stay elevated, or capital growth underperforms, the longer term becomes a constraint rather than an advantage.
One broker said the changes reward those who are well-prepared and strategic. Another said investor sentiment is too weak for product tweaks to make a meaningful difference. Both are likely true for different segments of the market.
What happens over the next twelve months
If investor activity remains subdued, expect lenders to keep competing on product features and pricing. That could mean more non-bank lenders offering lower buffers, more major lenders extending terms, and more rate discounts negotiated case-by-case rather than advertised publicly.
If the budget changes are reversed or softened, either through legislation or an election, investor demand could return quickly, and the urgency behind these product shifts would ease. Until then, lenders are working with the settings they have.
The risk is that looser credit standards now amplify the impact of any downturn later. Borrowers who stretched to buy at the top of the market with minimal equity build and thin serviceability margins are the ones who feel it first when conditions tighten.
What to do if you’re considering this
If you’re looking at an extended loan term or a lender with a lower serviceability buffer, pressure-test the cashflow under realistic scenarios. What happens if vacancy rises to 4-6 weeks per year? If interest rates stay at current levels for another two years? If property values stay flat or fall 5-10%?
Run the numbers on total interest cost over the full loan term, and compare that to a shorter term with higher repayments. If the only way the investment works is with a 40-year term and optimistic assumptions, that’s a signal.
If you have equity and income to support faster repayments, use the lower monthly obligation as a buffer, not a target. Pay more than the minimum when you can, and treat the flexibility as insurance rather than the baseline.
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General info, not financial advice.
