If you and your partner are separating and own an investment property, the type of property can shape your loan options as much as the loan itself.
A house, a unit and a new build can each be treated differently by lenders and by the tax system. Knowing those differences helps you decide whether to keep, sell or buy out your partner's share. Let's walk through it like we would over a coffee.
Which investment property type is easiest to finance?
No property type is automatically approved. Each lender sets its own credit policy for houses, units and other property types, so the same property can get different answers from different lenders.
What stays the same is how lenders assess you. Banks and other authorised deposit-taking institutions must test your ability to repay at a rate at least 3.0 percentage points above the loan rate. They also generally count no more than 80 per cent of expected rent, to allow for gaps between tenants. So a property that looks strong on paper still has to work on your own income after separation.
That is why a borrowing capacity check on your single income is a good first step.
Houses, units and body corporate costs
A house usually has no body corporate, while a unit or townhouse in a strata complex usually does. Body corporate fees are an ongoing cost, and your lender will look at your whole budget when it assesses the loan.
If you are keeping a unit, ask for the latest body corporate levies and any planned special levies. They reduce your cash flow, and cash flow matters more when you are carrying the loan alone. The main trade-off is that a lower-maintenance unit comes with levies you cannot avoid, while a house may cost more to maintain but has no levies.
Does a new build change your tax position?
Yes, it can. Under the law in force, losses from eligible new builds acquired after 12 May 2026 can still be deducted against all your income, including your salary.
Eligible new builds include homes built on previously vacant land, and homes that replace an existing property where the number of dwellings goes up. Knock-down rebuilds that do not add dwellings, and major renovations, are not eligible. If a new build is lived in for more than 12 months before it is sold to a later investor, that later buyer loses access to negative gearing on it.
If you are buying off the plan or building, a house and land package loan works differently from a standard purchase, so it is worth looking at early. Tax rules are complex and your situation is personal, so speak to your accountant before you decide.
Ready to get started?
Book a chat with a Finance and Mortgage Brokers at Divorce Home Loans today.
How do the new negative gearing rules affect an established property?
For established residential properties bought after 7:30pm AEST on 12 May 2026, net rental losses will only be deductible against other residential property income from the 2027-28 income year. Excess losses can be carried forward to future years.
Properties you already held at that time, including those under contract awaiting settlement, keep full deductibility of losses against other income until the property is sold. This matters in a separation. Grandfathering applies to the interest you held at 7:30pm AEST on 12 May 2026. Whether a share acquired from your former partner keeps that treatment depends on how the transfer is made and on the legislation. If you sell the property and buy a different established property later, you would be buying under the newer rule. Get tax advice before agreeing a buyout or transfer.
Example: keeping the investment property after separation
Consider a couple who own an established investment property bought before May 2026. One partner wants to keep it and buy the other out. The loan is currently in joint names, and the partner keeping it earns one salary.
The broker first tests the loan on a single income, using 80 per cent of the rent and the 3.0 point buffer. At the illustrative rate of 6.75% p.a., interest on a $500,000 loan is about $33,750 a year, or roughly $2,813 a month, on an interest-only basis. This is a simple illustration only and not a quote. Over a 25 year remaining term on principal and interest, the repayment at that same rate is about $3,455 a month.
The broker compares lenders and finds one whose policy suits the single income, then looks at an investment loan refinance to remove the other partner from the loan. The outcome in a scenario like this is that the keeping partner holds the property, the other partner is released from the debt, and both have a clear picture of repayments before signing. Equity in the property may also help fund the buyout, which is where equity release can come in. The trade-off is that borrowing more increases your repayments and your risk.
Interest only or principal and interest on an investment property?
Interest only means you pay just the interest for a set period, while principal and interest means you also pay down the loan. Interest only gives lower repayments early on, but the loan balance does not fall.
It also does not lift how much you can borrow. Lenders test the loan as if you were paying principal and interest over the shorter remaining term, so the assessment can be tougher. Interest on a rental property loan is deductible in both cases, but only the interest part of a principal and interest repayment is deductible, not the principal. Interest-only loans can also attract different pricing from lenders. You can read more about interest only loans on our site.
Can you release equity from an investment property for personal use?
Possibly. Equity release depends on lender approval, a serviceability assessment and the lender's own LVR and equity release limits. It may also need LMI approval if the total loan goes above 80 per cent LVR. The tax result then depends on what the money is used for. Interest is deductible only for the part of a loan used to produce income, not for private spending.
If you draw equity to buy out your partner's share of a home you live in, that borrowing is not for the rental. Keep these funds in separate loan splits so the purpose of each is clear. Your accountant can confirm how the rules apply to you.
Why LVR and LMI matter when you are borrowing alone
Lenders mortgage insurance is generally required when your loan to value ratio goes above 80 per cent. That 80 per cent mark is not a legal cap on borrowing, but a point where extra approval and a premium usually apply. The premium is paid by you.
Offset balances do not reduce the loan amount when the loan to value ratio is calculated. If you are close to the line after a buyout, a small change in the loan size can matter. Our page on LMI waivers explains when you might avoid the premium, as eligibility depends on the lender.
If the investment property is part of your separation, the right loan structure can protect your cash flow and your future. Call one of our team or book an appointment at a time that works for you, and we will work through your options with you.
Frequently Asked Questions
Do lenders treat houses and units differently?
Each lender sets its own credit policy for property types, so answers can vary. Units usually come with body corporate costs, which lenders consider in your overall budget.
Do new builds still get negative gearing?
Losses from eligible new builds acquired after 12 May 2026 can still be deducted against all income under current law. Speak to your accountant about how this applies to you.
Does interest only increase how much I can borrow?
No. Lenders assess interest-only loans on a principal and interest basis over the shorter remaining term, so borrowing capacity is not increased.
When is LMI usually required on an investment loan?
LMI is generally required when the loan to value ratio goes above 80 per cent. Each lender and insurer sets its own approval criteria, and the premium is paid by the borrower.
