Lenders don't treat all investment properties the same way.
A two-bedroom apartment in Cheltenham and a freehold house in Brighton East might both be residential investment properties, but the investment loan structure, deposit requirement and rental assessment can differ significantly. The property type you choose directly affects how much you can borrow, which lenders will support the purchase, and how rental income is treated in your serviceability calculation.
How Lenders Assess Units and Apartments
Units and apartments are subject to additional lending criteria not applied to freehold houses. Most lenders require a larger deposit for apartments, with many capping the loan to value ratio at 80 per cent for properties in buildings taller than three storeys or in developments with more than six units on the title. Some lenders apply a further cap of 70 per cent for studio apartments or properties smaller than 50 square metres.
Consider an investor looking at a two-bedroom apartment near Mentone station. If the property is in a building with 20 units, the investor may need a 20 per cent deposit minimum even with Lenders Mortgage Insurance available. If the apartment is smaller than 50 square metres, the deposit requirement could rise to 30 per cent, and some mainstream lenders may decline the application altogether, regardless of the investor's financial position.
Rental income is also treated differently. Lenders typically apply a vacancy rate loading of around 5 per cent when calculating serviceability for apartments, though this can increase to 10 per cent for studios or serviced apartments. Body corporate fees are deducted from gross rental income before the lender assesses your capacity to service the loan, and higher fees can reduce your borrowing power substantially.
Townhouses and Terraces in Bayside
Townhouses and terraces sit between apartments and freehold houses in lending terms. Properties on their own title with no body corporate are generally treated the same as a freehold house, meaning you can access higher loan to value ratios and a broader range of lenders. Properties on strata title with a shared driveway or common area are assessed more like apartments, though the lending restrictions are usually less severe.
A townhouse in Hampton on a standalone title will typically allow you to borrow up to 90 per cent of the purchase price with Lenders Mortgage Insurance, provided your financial position supports it. The same property on strata title may cap your borrowing at 85 per cent, and some lenders will apply a vacancy rate loading even if the property has similar characteristics to a freehold house.
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Why Freehold Houses Offer the Most Lending Flexibility
Freehold houses attract the fewest lending restrictions. You can generally borrow up to 90 per cent of the property value with Lenders Mortgage Insurance, and in some cases up to 95 per cent if you meet specific lender criteria. There are no body corporate fees to reduce your rental income assessment, and vacancy rate assumptions tend to be lower, usually around 2 to 3 per cent depending on the lender and location.
In suburbs like Beaumaris, Black Rock and Sandringham, where freehold properties dominate, investors often have access to a wider range of investment loan products and can negotiate better interest rate discounts due to the lower perceived risk. Rental income from a three-bedroom house is also assessed more favourably than income from an equivalent apartment, as lenders view tenant demand for houses as more stable over time.
That doesn't mean a freehold house is always the right choice. Purchase prices in Bayside are higher, which means a larger deposit in dollar terms and potentially lower rental yields compared to apartments in the same area. The decision comes down to your borrowing capacity, deposit size, and whether you're prioritising cash flow or capital growth.
Dual Occupancy and Granny Flats
Properties with dual occupancy or a secondary dwelling on the same title are treated differently again. If both dwellings have separate rental incomes and separate services, most lenders will recognise both income streams in your serviceability calculation. However, some lenders will only recognise income from the primary dwelling, or they may apply a higher vacancy rate to account for the increased management complexity.
If you're considering a property in Highett or Moorabbin with a granny flat, check with your broker before making an offer. Some lenders won't provide finance for properties where the secondary dwelling doesn't have council approval, and others may cap your loan to value ratio at 80 per cent even if both dwellings are fully compliant.
New Builds and the Changed Negative Gearing Rules
From 1 July 2027, rental losses on residential investment properties acquired on or after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward, unless the property is an eligible new build. Eligible new builds include dwellings constructed on previously vacant land and properties where the number of dwellings has increased. Knock-down rebuilds that don't increase dwelling numbers are not eligible.
For Bayside investors, this changes the comparison between established houses and new townhouse developments. A new townhouse in a subdivision that's added dwellings to a former single-lot site will allow you to offset rental losses against your salary until the property is sold. An established house purchased in the same timeframe will not. If you're a higher-income earner in the early stages of portfolio growth, the ability to claim negative gearing under the old rules can make a meaningful difference to your after-tax cash flow.
Lenders are unlikely to change their assessment of new builds in response to the tax changes, but the investor appetite for new property may increase, which could influence purchase prices and rental demand over time.
What This Means When You're Choosing Between Property Types
Your property type decision should be led by your borrowing capacity, deposit size, and investment goals, not by the property itself. If you have a 10 per cent deposit and strong income, a freehold house in Hampton East might be within reach. If your deposit is smaller or your income is modest, an apartment in Mentone or Cheltenham may be the only viable option, and that's not a compromise if the numbers support your long-term strategy.
Start by understanding what you can borrow and which property types fit within that limit. Then look at rental yield, holding costs, and how the property fits within your broader portfolio. If you're not sure which direction makes sense for your situation, a conversation with a broker who understands both the lending landscape and the Bayside market will give you clarity before you start searching.
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Frequently Asked Questions
Do I need a bigger deposit for an apartment than a house?
Yes, in most cases. Lenders typically cap apartment loans at 80 per cent loan to value ratio, especially for buildings with more than six units or properties above three storeys. Freehold houses can often be funded up to 90 per cent with Lenders Mortgage Insurance.
How do lenders treat rental income from apartments differently?
Lenders apply a vacancy rate loading of around 5 per cent for apartments, compared to 2 to 3 per cent for houses. Body corporate fees are also deducted from gross rental income before your borrowing capacity is calculated, which can reduce how much you can borrow.
Can I still negatively gear an investment property after the 2027 tax changes?
Only if you purchase an eligible new build. Properties acquired on or after 7:30pm AEST on 12 May 2026 that are not new builds will have rental losses quarantined and can only be offset against other residential rental income or carried forward.
Are townhouses treated the same as apartments by lenders?
It depends on the title type. Townhouses on their own title with no body corporate are usually treated like freehold houses. Townhouses on strata title are assessed more like apartments, though the restrictions are typically less severe.
Will lenders recognise rental income from a granny flat?
Most lenders will recognise income from a secondary dwelling if it has separate services and council approval. Some lenders may apply a higher vacancy rate or cap your loan to value ratio at 80 per cent for dual occupancy properties.
