Top tips to navigate property investment challenges

Midwives entering the property market as investors now face a different set of rules than those who bought even two years ago.

The federal government has introduced sweeping changes to negative gearing and capital gains tax alongside new lending caps from the regulator, and these changes affect how you structure an investment loan, what you can borrow, and how much tax relief you can claim. For midwives working shift-based income and planning to build wealth outside superannuation, understanding these changes is not optional.

The debt-to-income cap and how it affects your borrowing

From February this year, lenders may fund no more than 20 per cent of their new investor loans to borrowers with a debt-to-income ratio of six times or greater. This means if your total household income is $120,000, any borrowing above $720,000 counts toward that restricted pool.

Midwives earning around the median for the profession often fall into the range where the DTI cap bites. Consider a midwife on a base salary of $90,000 plus penalty rates and overtime bringing total income to $110,000. If they already hold an owner-occupied loan of $450,000 and want to borrow $350,000 for an investment property, their total debt would be $800,000, giving a DTI above seven. That application would sit in the 20 per cent pool, where approval depends on the lender's remaining quota for the quarter. Some lenders have exhausted that quota by mid-month. Others retain capacity but apply stricter servicing margins or require larger deposits to offset the higher DTI.

The calculation is straightforward but the outcome is not always predictable. A broker with access to multiple lenders can identify which institutions still have quota available and which product features might reduce the servicing assessment enough to bring you under the six-times threshold.

Negative gearing changes from July next year

From 1 July 2027, net rental losses on residential properties purchased after 7:30pm on 12 May this year cannot be offset against your salary or other non-rental income. Those losses are quarantined and can only be used against future rental income or capital gains on residential property.

For a midwife earning $110,000 and holding an investment property with a $12,000 annual loss, the tax benefit under the old rules would have been around $4,400 at the 37 per cent marginal rate. Under the new rules, that loss is carried forward. If the property generates a gain on sale, the carried-forward losses reduce the taxable gain, but in the holding period there is no annual tax refund.

The exception is for eligible new builds. If the property is built on previously vacant land or increases the dwelling count on the site, it remains eligible for negative gearing in the hands of the first investor. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. A dual-occupancy development that replaces one dwelling with two does.

This changes the shape of viable investment loan options for midwives who rely on the cash flow support that negative gearing provided. If you are targeting established stock in an inner or middle-ring suburb, expect to fund the holding costs without tax relief. If you are willing to purchase off-the-plan or newly completed builds in growth corridors, the old rules remain available but the location and tenant demand profile differ.

Capital gains tax and the removal of the 50 per cent discount

From the same date, the 50 per cent CGT discount for individuals is replaced with cost base indexation and a minimum 30 per cent tax rate on real gains for affected properties. The change applies only to gains that accrue after 1 July 2027, so any growth in value before that date is still eligible for the discount.

In practical terms, if you purchase an investment property now and hold it for ten years, selling in the mid-2030s, the portion of the gain that accrued before 1 July 2027 is discounted by 50 per cent and the portion accruing afterward is indexed to CPI and taxed at a minimum 30 per cent. The transitional treatment is complex and will require detailed record-keeping of the property's value at the changeover date.

Eligible new builds retain an election between the 50 per cent discount and the indexed method with the 30 per cent minimum, giving the investor the option to choose the more favourable treatment at the time of sale.

For midwives building a portfolio over decades, this affects the after-tax return on each property and the timing of disposal decisions. Selling just before or just after the July 2027 threshold can produce materially different tax outcomes depending on how much gain has accrued and what your other income is in that year.

Structuring your deposit and managing lenders mortgage insurance

Most lenders require a minimum 10 per cent deposit for an investment property, though some will lend at higher loan-to-value ratios if you hold other security or qualify for a professional waiver. Midwives employed in public health on a permanent contract may have access to LMI waiver programs that allow borrowing up to 90 per cent for investment purposes without paying the insurance premium.

The difference in upfront cost is significant. On a loan amount of $540,000 at 90 per cent LVR, the LMI premium typically falls between $15,000 and $20,000 depending on postcode and lender. With a waiver, that cost is removed. The waiver does not change the interest rate or the loan features, but it does mean you can enter the market with a smaller deposit or retain more cash for holding costs and future portfolio expansion.

Not all lenders offer the waiver for investment lending, and those that do often cap the maximum loan amount or apply additional servicing overlays. The waiver is also not a substitute for genuine savings. Lenders still expect you to demonstrate a savings history and the ability to manage repayments over time, particularly given the tighter DTI settings now in place.

Interest-only repayments and cash flow planning

Interest-only periods on investment loans are typically capped at five years, after which the loan reverts to principal and interest. During the interest-only period, repayments are lower and the deductible interest expense is higher, which can improve cash flow and, under the grandfathered rules, maximise the negative gearing benefit.

For midwives holding properties purchased before the May announcement, an interest-only structure remains a viable option for managing cash flow while rental income builds or while other debt is paid down. The interest remains fully deductible as long as the loan is used to acquire or hold the rental property.

For properties purchased after the cut-off and not qualifying as new builds, the loss cannot be claimed against salary, so the value of maximising interest deductions in the early years is reduced. The cash flow benefit of lower repayments remains, but the tax benefit does not.

Some lenders allow you to make principal repayments during the interest-only period without penalty, which can be useful if you receive irregular income such as overtime or agency shifts and want the flexibility to pay down debt when funds are available without committing to a higher monthly repayment.

Refinancing investment debt in the current environment

If you hold an existing investment property and your loan has been in place for more than two years, refinancing may provide access to a lower rate or remove cross-collateralisation that limits future borrowing. Lenders have tightened serviceability over the past 12 months, but they have also increased competition for high-quality borrower profiles, including midwives in secure employment.

A typical scenario involves a midwife who purchased an investment property in late 2023 on a fixed rate that has now expired. The loan has reverted to a variable rate higher than current market offers, and the lender is also applying a serviceability buffer that makes it difficult to borrow further for portfolio growth. Refinancing to a lender offering a lower variable rate and a higher DTI threshold can reduce repayments and restore borrowing capacity.

Refinancing does not reset the negative gearing grandfathering. If the property was held before the May 2026 announcement, it remains eligible for full negative gearing regardless of how many times the loan is refinanced. The grandfathering attaches to the property and the date of acquisition, not the loan contract.

The costs of refinancing, including discharge fees, application fees and valuation fees, need to be weighed against the interest saving and the strategic benefit of improved loan structure. In most cases where the rate differential is 0.4 per cent or more, the payback period is under two years.

Rental income assessment and vacancy assumptions

Lenders assess rental income at 80 per cent of the market rent to account for vacancy, management fees and periods between tenants. If a property is expected to generate $550 per week, the lender will include $440 per week in the servicing calculation. This is a fixed assumption across most lenders and is not negotiable.

For midwives buying in regional centres or outer growth suburbs where vacancy rates are higher than the metro average, this assumption can be conservative. Conversely, in tightly held inner suburbs with low vacancy, the 80 per cent shading may seem excessive but the lender applies it uniformly.

If you are purchasing a property that is currently tenanted, the lender will require a copy of the lease and evidence that the rent is being paid. If the property is vacant at settlement, you may need to show that you can service the loan without any rental income for the first three to six months, depending on the lender's policy.

Income from short-term rental platforms is generally not accepted by mainstream lenders unless you can demonstrate at least 12 months of history and provide a clear breakdown of occupancy and nightly rates. For midwives considering holiday rental properties as part of a wealth-building strategy, this limits the serviceability treatment and usually requires a larger deposit.

Building a second investment while holding your first

Once you hold one investment property, acquiring a second depends on your remaining borrowing capacity after the first loan and the rental income are accounted for. The DTI cap applies to total debt, so each additional property reduces your headroom.

For midwives looking to expand their portfolio, the most common constraint is not the deposit but the servicing assessment. If your first property is neutrally geared or slightly positive, adding a second property with a similar profile may still be viable. If the first property is heavily negatively geared and the loss is now quarantined under the new rules, your capacity to service a second loan is reduced because you are funding the shortfall from after-tax income.

One approach is to target a new build for the second acquisition, retaining access to negative gearing and improving the overall cash flow position across the portfolio. Another is to pay down non-deductible debt such as your owner-occupied loan or car finance before applying for the second investment loan, lifting your net income and reducing your DTI.

The sequence matters. Borrowing capacity is assessed at the point of application, so structuring your existing debts and maximising your documented income before you apply will determine whether the second loan is approved.

Call one of our team or book an appointment at a time that works for you. We work with midwives who are building wealth through property and can structure your lending to fit the new rules while keeping your options open as the portfolio grows.

Frequently Asked Questions