When you're considering buying an investment property as a Defence Force member, understanding how lenders assess investment risk is crucial to your success. Investment risk assessment goes far beyond your credit score – it's a comprehensive evaluation that determines whether you'll access investment loan options from banks and lenders across Australia.
What Lenders Look for in Investment Risk Assessment
Lenders evaluate several key factors when you're applying for an investment loan. Your borrowing capacity forms the foundation of their assessment, taking into account:
• Your current income and employment stability (which Defence members typically have in their favour)
• Existing debts and financial commitments
• Living expenses and dependents
• Banks statements showing your spending patterns over recent months
The loan to value ratio (LVR) plays a significant role in risk assessment. Most lenders prefer an LVR of 80% or below for investment properties to avoid lenders mortgage insurance (LMI). However, Defence members may have access to specialised products that allow higher LVRs with reduced LMI costs.
Property-Specific Risk Factors
The type of investment property you choose affects the lender's risk assessment. When you research property options, consider how lenders view different property types:
Stand alone dwellings are generally viewed favourably by lenders due to their broad market appeal and potential for capital growth.
Townhouses offer a middle ground, often accepted by most lenders with standard lending criteria.
Apartments may face stricter assessment, particularly in oversupplied markets or buildings with high investor concentrations.
Rental yield is another critical factor lenders examine. Properties with strong rental yields in established markets demonstrate lower risk, as they're more likely to maintain consistent rental income to support your investment loan repayments.
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Financial Capacity and Investment Strategy
Your investment loan application will be scrutinised based on your overall property investment strategy. Lenders want to see that you understand the financial implications of invest in real estate, including:
Cash flow considerations: Can you service the rental property loan if the property becomes vacant? Lenders typically assess your ability to cover repayments without rental income for several months.
Negative gearing implications: While negative gearing can provide tax benefits, lenders need to see you can afford the ongoing shortfall between rental income and property expenses.
Interest rate buffers: Lenders assess your capacity to handle potential interest rate increases, typically adding 2-3% to current rates in their calculations.
The Application Process and Risk Mitigation
The streamlined application process for Defence members often includes preferential assessment criteria. However, you'll still need to demonstrate:
• Genuine savings (typically 5-10% of the loan amount)
• Stable employment history
• Clear understanding of property market conditions
• Realistic expectations about rental returns and expenses
Whether you choose a variable interest rate or fixed interest rate option affects risk assessment. Fixed rates provide payment certainty, which some lenders view favourably, while variable rates offer flexibility and potential interest rate discounts.
Building Your First Investment Property Portfolio
If you're purchasing your first investment property, lenders may take a more conservative approach. They'll closely examine your experience with property ownership and your understanding of landlord responsibilities.
For those expanding an existing investment property portfolio, lenders assess your track record as a property investor and the performance of your existing properties.
Additional Costs and Considerations
Investment loan interest rates are typically higher than owner-occupier rates, reflecting the increased risk lenders associate with investment properties. Factor in additional costs such as:
• Stamp duty (varies by state)
• Legal and conveyancing fees
• Building and pest inspections
• Ongoing property management costs
Calculating investment loan repayments should include these additional expenses to ensure your investment remains viable.
Defence members have unique advantages when buying a rental property, including stable employment and potential access to specialised lending products. However, successful property investment requires careful planning and understanding of how lenders assess investment risk.
Working with specialists who understand both property investment loan features and Defence member benefits can help you present the strongest possible application while choosing investment loan options that align with your financial goals.
Call one of our team or book an appointment at a time that works for you to discuss your investment property goals and how we can help structure your application for success.
