How Different Lenders Assess Investment Loans: A Credit Policy Comparison
Behind the Scenes of Lender Credit Assessments, Risk Scoring, and Buffers
Why Credit Policy Matters for Property Investors
Many investors are caught off guard when they apply for an investment loan with one lender and get rejected—only to be approved by another lender a week later without changing a thing. How can two lenders look at the same borrower, same financials, and reach completely different decisions?
The answer comes down to credit policy.
While most borrowers focus on rates and fees when comparing loans, the real engine behind loan approvals lies in each lender’s credit rules. These rules govern how income is assessed, how expenses are calculated, how much risk a lender is willing to take, and what types of properties or borrowers are within scope. For investors, understanding these behind-the-scenes differences is crucial, especially when you rely on rental income, carry multiple loans, or need flexible serviceability.
This article lifts the curtain on how lenders assess investment loans—and shows how mastering these differences can be the key to turning “declined” into “approved.”
Understanding the Basics: What Is a Lender’s Credit Policy?
A lender’s credit policy is the internal framework it uses to decide:
- Who to lend to
- How much to lend
- On what terms
It’s shaped by a mix of regulatory guidance (from bodies like APRA and ASIC), the economic environment, internal risk appetite, and historical loan performance.
Credit policy covers:
- Minimum credit scores
- Income assessment rules
- Debt-to-income and expense guidelines
- Maximum borrower exposure
- Loan-to-value ratio (LVR) limits
- Acceptable property types and postcodes
While policies follow industry standards, each lender’s interpretation can vary widely. For an investor, one bank may view you as a safe bet, while another may see you as high risk.
How Lenders Assess Investment Loans: The Core Factors
Most lenders assess five main pillars:
- Income – salaries, self-employment income, rental income
- Expenses – living costs, dependents, ongoing commitments
- Assets – savings, equity, shares, superannuation
- Liabilities – mortgages, car loans, credit cards, buy-now-pay-later
- Loan Details – LVR, purpose, term, repayment type
While the data is similar, each lender’s interpretation creates vastly different outcomes.
1. Serviceability Calculations and Interest Rate Buffers
Serviceability refers to your ability to afford repayments on all debts—even if rates rise.
Most banks apply a 3% buffer above the current rate. For example, if your loan rate is 6%, they test you at 9%. Non-bank lenders or second-tier institutions may use a smaller buffer (2–2.5%), increasing your borrowing capacity.
For investors scaling up, the buffer size can make or break a deal.
2. Rental Income Shading and Acceptable Sources
Lenders apply a “shading factor” to rental income to account for vacancies, management fees, and maintenance.
- Major banks: typically use 70–80% of gross rent
- Specialist/non-bank lenders: may accept up to 90–100% with evidence
Other considerations:
- Short-term (Airbnb) income may be excluded or discounted
- Rooming house or boarding income might be rejected
- Foreign rental income is usually not accepted
- Some lenders require current leases or rental histories
3. Existing Debt Commitments and Expense Loading
Lenders carefully assess existing debt—even if it’s currently low-rate or interest-only:
- Many calculate P&I repayments for all debts, even if you’re paying interest-only now
- Assessment rates may be set at 8–9% across all loans
- Credit card limits are counted, not just balances
They also apply benchmark living expenses like the Household Expenditure Measure (HEM). If your reported expenses fall below this level, lenders use the benchmark instead.
4. Credit Score, Conduct History, and Risk Appetite
Lenders check:
- Your credit score
- Recent loan applications
- Payment history on loans and bills
- Defaults or judgments
Traditional banks often decline applicants with blemishes. Non-bank lenders may be more flexible, focusing on recent behaviour and total asset position.
Internal risk grading also affects approvals, factoring in:
- LVR
- Income stability
- Loan size
- Employment history
This can influence whether you’re approved—and what rate you’re offered.
5. Property Type and Location Risk Weighting
Not all properties are viewed equally.
Higher-risk properties may face:
- Lower LVR caps
- Stricter servicing rules
- Additional valuation checks
- Outright rejection
Examples of flagged properties:
- Small apartments (<50 sqm)
- Student housing
- High-rise towers
- Regional or mining towns
Lenders maintain internal postcode blacklists that vary widely.
6. Banks vs Non-Banks vs Private Lenders
Different lender categories take different approaches:
- Major banks: conservative, strict buffers, rigid rules
- Second-tier banks: more investor-friendly, more flexibility
- Non-bank lenders: creative structuring, lower buffers, aggressive LVRs
- Private lenders: fast settlements, asset-based, high rates, few checks
If you need creative solutions or faster growth, non-bank and second-tier lenders can be powerful options. For long-term cost control, banks still have a role.
7. Cross-Collateralisation and Portfolio Exposure
Cross-collateralisation—using multiple properties as security—can reduce flexibility:
- Makes it harder to refinance or sell one property
- Increases risk exposure to one lender
- Complicates restructuring
Lenders also limit:
- Number of properties per borrower
- Total loan exposure
- Geographic concentration
Many experienced investors spread lending across multiple banks to avoid these traps.
8. The Role of LVR, Loan Size, and Loan Purpose
Lower LVRs often unlock:
- Better rates
- Faster approvals
- More generous policy treatment
But aggressive investors sometimes need to stretch to 90–95% LVR (with LMI), where lender tolerance becomes critical.
Also important:
- Loan size: jumbo loans (>AUD 1m) often trigger extra checks
- Loan purpose: cash-outs and refinances face tighter scrutiny
- Repayment type: some lenders limit long-term interest-only terms
Why Two Identical Investors Get Different Outcomes
Imagine two identical investors applying at two lenders:
- Lender A uses 80% rental income; Lender B uses 70%
- Lender A applies actual rates; Lender B applies a 3% buffer
- Lender A accepts Airbnb history; Lender B needs a lease
Result: Investor A gets approved for AUD 900,000; Investor B only qualifies for AUD 750,000.
This is why lender selection—not just borrower profile—is so critical.
Tips for Navigating Credit Policy as an Investor
- Choose lenders strategically—align with your goals
- Use splits, offsets, and standalone loans for flexibility
- Keep documentation clean and consistent
- Reduce liabilities where possible (close unused credit cards)
- Work with a broker who understands lender differences
Building Your Portfolio Around Credit Strategy
As an investor, your portfolio success isn’t just about what you buy—it’s about how you finance it. Credit policy is the invisible framework shaping how far and fast you can scale.
With lending conditions tightening and rates shifting, aligning your strategy to the right lender is more critical than ever. Build relationships with investor-savvy brokers, track lender changes, and always think two loans ahead.
In today’s market, finance strategy isn’t just part of your investment plan—it is your investment plan.
