Top tips to finance your Dulwich Hill investment apartment

Buying an investment apartment in Dulwich Hill under new lending rules

Investor lending tightened in February this year when APRA's debt-to-income cap came into force. Banks can now only approve 20 per cent of their investor loans at six times income or higher, which means borrowers with bigger deposits and smaller debt loads move through faster. If you're looking at apartments in Dulwich Hill, the lower entry price compared to houses can help you stay inside those new limits, but serviceability still comes down to rental income, your existing debts, and how the lender models a buffer on top of the actual rate.

Consider someone earning $110,000 who wants to buy a two-bedroom unit near the light rail. With a 20 per cent deposit and no other debt, most lenders will calculate repayments at the product rate plus three percentage points, then check that the borrower can still cover their living expenses. Rental income from the property gets added back in, usually at 80 per cent of the assessed weekly rent to account for vacancies and maintenance. If the numbers land you above six times income, you're not automatically declined, but you may wait longer for credit approval or need to find a lender who hasn't hit their cap yet.

Dulwich Hill sits on the light rail corridor between Marrickville and Hurlstone Park, which keeps apartments popular with renters working in the city or around Sydney Olympic Park. Investment loans for units in strata schemes are treated differently to houses because the lender also looks at the body corporate, the building age, and whether there's enough owner-occupiers in the block. Most banks want at least 50 per cent owner-occupied, and they'll knock back anything with major defects or a sinking fund that's running dry.

How the negative gearing changes affect apartments bought now

From 1 July next year, rental losses on residential property purchased after mid-May this year can only be offset against other residential rental income or carried forward. You can't subtract them from your wage anymore unless the property qualifies as an eligible new build, which means it was constructed on previously vacant land or it added to the total number of dwellings on the site. A knock-down rebuild that replaces one house with one house doesn't count, and neither does a renovated apartment.

If you're buying an established unit in one of the older blocks along Marrickville Road or New Canterbury Road, the quarantine applies. You'll still claim interest, strata fees, council rates, and all the other deductible expenses, but if those outgoings exceed your rent, the loss sits in a separate bucket. When you eventually sell, any banked losses reduce your capital gain, so nothing's lost forever, it's just deferred.

In practice, this changes the math for people who were relying on a tax refund to subsidise the holding cost. Cashflow becomes tighter because you're funding the shortfall out of after-tax income instead of getting it back at year-end. For Dulwich Hill apartments that rent well, the gap between income and outgoings is usually smaller than it would be for a house, since your loan amount and strata levies are lower and vacancy rates in the area sit around two per cent most quarters. That makes the quarantine less painful, but you still need a buffer.

Interest-only versus principal-and-interest for apartment investors

Most property investors pick interest-only repayments for the first few years to keep the monthly cost down and maximise deductions. The loan amount doesn't shrink, so every dollar of interest stays claimable, and your surplus income can go toward topping up offset accounts or funding the next deposit. After the interest-only period ends, usually five years, the loan flips to principal and interest and the repayment jumps.

Lenders price interest-only investment loans higher than principal-and-interest loans, typically by 0.20 to 0.40 percentage points depending on your deposit and the lender's current appetite. If you're borrowing 80 per cent on a Dulwich Hill unit, that difference might add $60 to $100 a month, but it keeps your cash position stronger. The trade-off is that you're not building equity through repayments, only through any capital growth the property delivers.

Some investors split the loan so part is interest-only and part pays down principal. That structure gives you a tax deduction on the interest-only portion while still chipping away at the debt. It's not common, but it works if your income fluctuates or you want the discipline of forced savings without locking the whole amount into principal and interest from day one. Your broker can model both options with actual repayment figures once you've picked a property and locked in a rate.

Variable or fixed rates for investment property finance

Variable rates on investment loans currently sit higher than owner-occupier rates, and they move when the Reserve Bank shifts the cash rate or when the lender tweaks their margin. Fixed rates lock the repayment for one to five years but come with break costs if you sell, refinance, or pay down more than the annual limit before the term ends. For apartments, where you might want to sell and trade up within a few years, a variable loan gives you more flexibility.

If you fix and the market turns, you could be stuck paying above the going rate while everyone else is benefiting from cuts. If you stay variable and rates climb, your holding cost goes up and you wear the extra repayment. Most lenders let you fix part of the loan and leave the rest variable, which spreads the risk. In our experience, investors buying their first unit tend to go variable because they're still learning how the property performs and they don't want to be locked in if something changes.

Deposit size, Lenders Mortgage Insurance, and loan-to-value limits

You can borrow up to 90 per cent of the purchase price for an investment apartment, but anything over 80 per cent means you'll pay Lenders Mortgage Insurance. LMI protects the bank if you default, and the premium gets added to your loan or paid upfront. On a unit valued around the Dulwich Hill median, LMI at 85 per cent might cost $8,000 to $12,000, and at 90 per cent it can double.

A 20 per cent deposit avoids LMI and usually gets you a lower rate, since lenders treat anything at 80 per cent loan-to-value or below as lower risk. If you already own property, you might be able to use equity from your home as part or all of the deposit, which means you're not pulling cash out of savings. The lender values both properties and lends against the combined security, but you still need to service both loans, and the debt-to-income cap applies to the total.

Body corporate reports matter more for apartments than they do for houses. The lender orders a strata search to check the sinking fund balance, any special levies on the horizon, building insurance, and whether the owners corporation is chasing anyone for unpaid fees. If the report shows a deficit or major works coming up, some lenders will reduce how much they'll lend or walk away altogether. Dulwich Hill has a mix of newer low-rise blocks and older walk-ups from the seventies and eighties, and the older ones sometimes flag higher maintenance costs, which can slow down your approval.

Rental income, vacancy assumptions, and serviceability

Lenders add rental income to your serviceability calculation, but they don't use the full amount. Most apply a 20 per cent haircut to cover vacancy, repairs, and strata levies, so if the property rents for $650 a week, the bank will only credit you with $520. That shading protects them if the tenant leaves or the rent drops, but it also means you can't rely on the lease amount to get you over the line if your income is borderline.

Vacancy rates around Dulwich Hill have been low for the past two years because the light rail makes commuting to the CBD or around the inner west quick, and there's enough cafes, parks, and schools to keep the suburb popular with young families and professionals. A two-bedroom unit in a tidy block near the station or Dulwich Grove usually finds a tenant within a couple of weeks, which keeps your actual downtime shorter than the 20 per cent the lender assumes. Even so, you need to budget for at least one month vacant every couple of years and another month for any repairs between leases.

What documents you'll need and how long approval takes

The investment loan application asks for payslips, tax returns if you're self-employed, bank statements covering your savings and any offset or redraw accounts, and a copy of the contract of sale once you've found a property. If you're using equity, the lender will want a valuation on your existing property, and if you have other investment properties, they'll ask for lease agreements and recent strata statements.

Approval usually takes five to ten business days if your income is straightforward and the property ticks all the boxes. If the lender needs to review the body corporate records or if you're close to the debt-to-income cap, it can stretch to two or three weeks. Conditional approval comes first, then the valuation, then formal approval once the lender is satisfied the property is worth what you're paying and the strata scheme is sound. Settlement periods for apartments in Dulwich Hill are typically 42 days, but some sellers push for 30, so you want your finance locked down early.

Refinancing an existing investment loan after purchase

Once you've held the property for six to twelve months, refinancing becomes an option if you find a lower rate or you want to pull equity out for the next purchase. Lenders treat a refinance the same way they treat a new purchase, so they'll re-assess your income, your debts, and the property value. If the apartment has increased in value or you've paid down some principal, your loan-to-value ratio improves and you might access a lower rate or avoid LMI on the next deal.

Refinancing also lets you switch from interest-only back to another interest-only term if the original period is ending and you're not ready for the higher principal-and-interest repayment. Not all lenders will approve a second or third interest-only term, especially if your equity position hasn't improved, but if the property is performing and your income has grown, most will roll it over. The key is to start the conversation three months before the current term expires so you're not forced onto principal and interest while you're waiting for a new approval.

Call one of our team or book an appointment at a time that works for you and we'll walk through your numbers, show you what different lenders will lend, and help you work out whether an apartment in Dulwich Hill fits your budget and your long-term plan.

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