Why 5% Is Nearly Impossible for Investment Properties
The 5% deposit option — made famous by the First Home Guarantee scheme — does not apply to investment properties. Full stop. It exists exclusively for owner-occupiers purchasing their first home.
Beyond that scheme exclusion, APRA (the Australian Prudential Regulation Authority) has issued macro-prudential guidance that pushes lenders to treat investment lending more conservatively than owner-occupier lending. This means:
- Investment loans face stricter serviceability assessments
- Most lenders cap investment LVR at 80% (requiring 20% deposit)
- Lenders Mortgage Insurance (LMI) providers — QBE and Helia — limit investment lending to 90% LVR maximum, and not all lenders offer this
- Even at 90% LVR, the LMI premium is significantly higher for investors than owner-occupiers
Actual Minimum Deposit Requirements: The Full Picture
| Deposit / LVR | LMI Required? | Available for Investment? | Notes |
|---|---|---|---|
| 5% (95% LVR) | Yes (very high) | No — not available | No mainstream lender offers 95% LVR for investments; LMI won't cover it |
| 10% (90% LVR) | Yes | Limited — select lenders only | LMI premium is large; rates are higher; serviceability assessed strictly |
| 15% (85% LVR) | Yes | Limited — more lenders | LMI applies but smaller; some lenders offer this to strong applicants |
| 20% (80% LVR) | No | Yes — most lenders | Standard investment loan threshold; best rates and most flexibility |
| 30%+ (70% LVR) | No | Yes — all lenders | Best rates; maximum flexibility; preferred for portfolio investors |
LMI for Investment Properties: What It Actually Costs
Lenders Mortgage Insurance protects the lender (not you) if you default. For investment properties, LMI premiums are substantially higher than for owner-occupiers at the same LVR, because lenders treat investment loans as higher risk.
| Property Value | LVR | Approximate LMI (Owner-Occ) | Approximate LMI (Investor) |
|---|---|---|---|
| $700,000 | 90% | ~$17,000 | ~$22,000–$26,000 |
| $700,000 | 85% | ~$9,500 | ~$12,000–$15,000 |
| $800,000 | 90% | ~$19,500 | ~$25,000–$30,000 |
| $800,000 | 85% | ~$11,000 | ~$14,000–$17,500 |
LMI can be capitalised onto the loan (added to the loan balance) rather than paid upfront, but it still increases your total debt and repayments.
Using Equity Instead of Cash: The Smart Investor's Path
Many experienced investors buy their first — or second, or fifth — investment property without a separate cash deposit. Instead, they use equity in their existing home or investment property. This is by far the most common path for Sydney investors.
How equity access works
Your usable equity is calculated as:
Usable equity = (Property value × 80%) − Current loan balance
The 80% limit ensures you don't exceed 80% LVR on your existing property (which would trigger LMI).
| Your Home Value | Current Loan Balance | 80% of Value | Usable Equity |
|---|---|---|---|
| $900,000 | $350,000 | $720,000 | $370,000 |
| $900,000 | $500,000 | $720,000 | $220,000 |
| $750,000 | $300,000 | $600,000 | $300,000 |
| $750,000 | $450,000 | $600,000 | $150,000 |
This usable equity can be accessed via a cash-out refinance, a home equity loan, or a line of credit — and used as the deposit (and sometimes stamp duty) for an investment property.
Cross-securitisation vs standalone equity access
There are two main ways to structure equity-based investment loans:
- Cross-securitisation: Both your home and investment are used as security for both loans. Simpler to set up but ties properties together — if one property has issues, both loans can be affected.
- Standalone equity access (preferred): You draw equity from your home as cash (via refinance or top-up), deposit it into your bank account, then take out a separate investment loan with that cash as the deposit. Properties stay independent. Most brokers recommend this structure.
The FHSS Scheme: A Legitimate Path for First Investors
The First Home Super Saver (FHSS) scheme allows eligible first home buyers to withdraw up to $50,000 in voluntary superannuation contributions to use as a home deposit. While the scheme requires you to live in the property for at least 6 months within the first 12 months, there is nothing preventing you from then renting it out and converting it to an investment property.
| FHSS Feature | Detail |
|---|---|
| Maximum withdrawal | $50,000 (up to $15,000/year in voluntary contributions) |
| Tax advantage | Contributions taxed at 15% (vs up to 47% marginal rate); withdrawals taxed at marginal rate − 30% offset |
| Owner-occupier requirement | Must intend to live in property; must occupy for ≥6 months within first 12 months |
| After occupancy requirement | Can rent out / treat as investment — no restriction after 6 months |
| Property value limit | No cap (as of 2026) |
| Application process | Request FHSS determination from ATO; once approved, apply for release; time from application ~25 business days |
This "live in then rent out" strategy is entirely legal and widely used by first-time investors in Sydney — particularly in growth suburbs where buying now matters more than waiting to save a larger deposit.
Specialist Lenders: Who Offers 90% LVR for Investors?
While major banks have tightened investment lending, a small number of lenders still offer 90% LVR investment loans — subject to LMI approval and stricter serviceability. These typically include non-bank lenders and some second-tier banks.
| Lender Type | Max Investment LVR | LMI Capitalised? | Notes |
|---|---|---|---|
| Big Four (CBA, ANZ, Westpac, NAB) | 80% standard; 90% available to strong applicants | Yes | Policy varies; 90% LVR requires strong income, stable employment, clean credit |
| ING, Suncorp, Bankwest | 80–90% | Yes | More flexible than Big Four; competitive rates at 80% LVR |
| Non-bank lenders (Pepper, La Trobe, Liberty) | Up to 90% (some up to 95% for specific products) | Some yes; some use own risk fee | Higher rates; more flexible credit assessment; useful for complex income situations |
| Credit unions / mutuals | Varies (typically 80%) | Yes | Member-based; may have competitive rates for lower LVR |
The Best Path If You're Under 20% Deposit
If you don't have 20% plus costs saved for an investment property, here are your real options — ranked from most to least commonly recommended:
| Strategy | Deposit Required | Key Requirement | Recommended? |
|---|---|---|---|
| Use equity from existing home | $0 cash needed | Own a home with usable equity | Yes — best option if you already own a home |
| FHSS scheme (live in first) | Low — up to $50K from super | First home buyer; must occupy 6+ months | Yes — strong tax advantage for genuine first buyers |
| 10% cash deposit + LMI | 10% + LMI (~3–4%) | Strong income; clean credit; stable employment | Sometimes — LMI cost must be justified by expected capital growth |
| Guarantor (family security) | Can be $0 cash | Parent/family member with equity willing to go guarantor | Yes — but formalise with legal advice for the guarantor |
| Save to 20% | 20% + costs | Time — typically 2–5 years for Sydney | Yes — no LMI; cleanest start; best rates |
| Buy-then-occupy (owner-occ rates first) | 5% (via First Home Guarantee) | First home buyer who then rents out after occupying | Yes — but must meet owner-occ scheme intent requirements |
What About Parental Guarantors?
A family guarantee (or parental guarantee) allows a parent or close family member to use equity in their property as additional security for your loan. This can allow you to borrow up to 100% of the property value — meaning zero cash deposit required — while avoiding LMI.
Key points:
- The guarantor must have sufficient equity in their own property
- The guarantee is typically limited to the LMI shortfall amount (e.g. 20% of the purchase price + costs), not the full loan
- The guarantor is legally liable if you default — this must be understood by all parties
- Guarantor limits can be removed once sufficient equity is built up (typically when you reach 80% LVR)
- Some lenders offer family guarantee products for investment properties; others restrict it to owner-occupied
- Legal and financial advice for the guarantor is strongly recommended and sometimes required
Common Mistakes Investors Make About Deposit Requirements
- Assuming 5% will work: It won't for investment. Don't let internet articles or social media posts from other countries mislead you — Australian APRA rules are specific and enforced.
- Forgetting purchase costs: On top of the deposit, allow for stamp duty (~$30,000+ on a $700K property in NSW), building inspection, legal fees, loan costs. These are not covered by LMI or the deposit.
- Counting on first home schemes: You cannot use the First Home Guarantee, FHOG, or similar owner-occupier concessions for an investment property you never intend to live in.
- Underestimating LMI cost: LMI for investors at 90% LVR on a $750K property can exceed $25,000. This must be factored into your return-on-investment calculation.
- Overlooking stamp duty on equity access: If you're using equity to buy an investment property, stamp duty is still payable on the investment property purchase (NSW investors don't get a stamp duty exemption).