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Neutral Gearing Calculator

The rental yield — and the loan size — where a bank treats an investment property as paying for itself, and stops it dragging down what you can borrow next.

The straight answer

For a bank to see an investment property as “self-funding,” the rent it counts (about 80% of gross) has to cover the repayment it assesses (your rate plus 3%). Turn that into a yield and the number is brutal: on the defaults below — a $720k property, 80% borrowed — you’d need a gross yield near 10% to be neutral. It yields about 4.3%. Typical residential property sits at 3–5%, which is the whole reason each geared place chews into your borrowing power — even while the rent covers your actual repayments just fine.

Gross rent, before any costs
Purchase price or current value — sets the gross yield
The actual rate you’d pay — investor loans run ~0.25% above owner-occupier
How much of the price you put in. The rest is the loan (here, an 80% LVR).
A shorter term = higher assessed repayment = lower neutral loan
Lenders count ~70–80% of gross rent, for vacancy, management, rates and upkeep
Regulator-set, 3% since 2021. Your repayment is tested at rate + this.
Everything updates as you type. Nothing is sent anywhere — the maths runs in your browser.

General information, not financial or credit advice. Lenders vary — shading, buffers and how interest-only loans are assessed differ by bank and applicant. Confirm your own numbers with a broker or lender.

How the neutral line works

Two twists make the bank’s version stingier than your actual bank account:

So the neutral loan is just the biggest loan that shaded rent could pay off on its own, at the buffered rate, over the term. In plain algebra:

Neutral loan = the loan whose assessed P&I repayment equals the shaded rent. Quick napkin version: shaded annual rent ÷ (your rate + 3%) — which slightly overstates it, because real repayments include principal, not just interest.

The neutral yield — and why it’s so high

Flip that into a yield and you get the number this page really exists for: the gross rental yield at which a property funds itself in the bank’s eyes. It depends on how much you borrow (your LVR):

Neutral yield = LVR × (assessed repayment rate) ÷ shading. Fully borrowed, that’s roughly (your rate + 3%) ÷ 0.8 ≈ 12% at today’s rates. With a 20% deposit it eases to about 10%. Put in a bigger deposit and the neutral yield falls — because a smaller loan needs less rent to cover it.

Residential property in Australia yields about 3–5% gross. So on any normal deposit, a resi investment lands miles under its neutral yield — which is exactly why leveraged property, however good the growth, keeps eating borrowing capacity. Commercial, rooming or regional high-yield stock is where the yield can actually approach neutral.

Why the bank’s number is the one that matters

You can be genuinely cash-flow positive — rent covering every dollar of your actual repayment — and still watch each new property chip away at your borrowing power. That’s the gap the calculator draws above: the shading plus the 3% buffer roughly halve the loan the bank treats as self-funding, versus the loan your rent really covers. And it’s the bank’s number, not your bank balance, that decides whether you get the next loan.

One more catch worth knowing: even a property sitting bang on the neutral line still adds to your total debt-to-income stack, which is a separate ceiling lenders watch.

Your call

If your loan sits under the self-funding line, this property isn’t what’s capping your next approval — your income and expenses are, so that’s where the borrowing-power calculator earns its keep. If it’s over the line, the levers that actually move it are a bigger deposit (smaller loan) or a genuine rent rise; chasing a slightly lower headline rate barely shifts it, because the 3% buffer does the heavy lifting. Whether you gear past neutral to chase capital growth is a real trade-off between borrowing room now and upside later — and that one’s yours to weigh.

Common questions

What rental yield makes a property neutral?
Roughly (your rate + 3%) ÷ shading, scaled by how much you borrow. Fully borrowed at a 6.5% rate that’s about 12% gross; with a 20% deposit, closer to 10%. Because typical residential yields are 3–5%, almost no geared resi property gets near neutral — the calculator above shows your exact figure.
What does “neutral to borrowing power” actually mean?
It’s the point where the rent a lender counts exactly covers the repayment it assesses. Below it, the property is a net plus to your serviceability; above it, a net drag. It’s a serviceability idea, not a tax one — different from negative or positive gearing on your tax return.
Why is it so much lower than what my rent really covers?
The bank counts ~80% of the rent and tests the repayment at your rate + 3% as principal & interest. Your actual cash flow uses the full rent at your real rate. Those two haircuts together roughly halve the loan the bank calls self-funding — which is exactly why cash-flow-positive investors still hit borrowing walls.
Does dropping the interest rate lift the neutral loan?
Barely. The fixed 3% buffer sits on top of whatever rate you enter, so a 0.5% lower rate nudges the line only a few percent. Rent, deposit size and the assessed term move it far more.
Is this the same for every lender?
No. Shading (70–80%), the exact buffer, and how interest-only loans are assessed all vary by lender and applicant. Treat this as the shape of it, then have a broker run your specific lenders.

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