How Rental Income Shading Affects Your Borrowing Capacity
Many property investors are surprised to learn that lenders don’t assess rental income at its full amount. Instead, they apply a process known as rental income shading. Understanding how rental income shading affects your borrowing capacity can help you set realistic expectations and structure your investment strategy more effectively.
What Is Rental Income Shading?
Rental income shading is when lenders reduce the amount of rental income they include in servicing calculations. This is done to account for vacancies, maintenance costs, and management fees.
Most lenders assess between 70% and 80% of gross rental income.
Why Lenders Shade Rental Income
Rental income is considered less reliable than employment income. Vacancies, tenant changes, and unexpected repairs all increase risk.
Shading helps lenders ensure borrowers can manage repayments even during periods of reduced income.
How Shading Impacts Borrowing Capacity
Reduced assessable rental income means less surplus income is available to service debt. This can significantly reduce how much you can borrow, particularly for investors with multiple properties.
Even small changes in shading percentages can have a large impact.
Do All Lenders Shade Rental Income the Same Way?
No. Rental income shading varies between lenders. Some apply higher shading, while others are more generous depending on property type and borrower profile.
Choosing the right lender can make a meaningful difference.
Why This Matters for Australian Property Investors
Australian lenders take different approaches to rental income assessment, and policies change regularly. Investors who rely solely on online calculators often underestimate this impact.
How The Finance Brokers Can Help
The Finance Brokers compare rental income assessment across multiple lenders to help maximise borrowing capacity. They structure applications to present rental income clearly and select lenders with investor-friendly policies.
Want to Maximise Your Investment Borrowing Power?
If you’re investing or expanding your portfolio, expert guidance can help you understand how rental income will really be assessed.
Book a free consultation with The Finance Brokers
Final Thoughts
Rental income shading is a key factor in investor loan assessments. Understanding how it works — and choosing the right lender — can help you plan your investments with greater confidence and clarity.
