Using equity from your existing home can give you access to funds for a second property without needing to save another full deposit.
This approach matters particularly for Adelaide buyers looking at investment properties or upgrading while keeping their current home. The process involves your lender assessing the value of your existing property, calculating how much equity you've built, and determining how much of that equity you can access while maintaining acceptable loan-to-value ratios. Understanding how lenders assess both properties together, and how that affects your borrowing capacity, shapes whether this strategy works for your situation.
How Lenders Calculate Usable Equity
Usable equity is the difference between your property's current value and what you owe, minus the buffer lenders require you to maintain. Most lenders won't let you borrow against the full value of your home. They typically require you to keep at least 20% equity in your existing property, meaning you can access up to 80% of its value minus your current loan balance.
Consider a buyer who owns a home in Norwood valued at $850,000 with $320,000 remaining on the mortgage. The maximum lending against that property would be $680,000 (80% of $850,000). Subtract the existing $320,000 loan, and the accessible equity sits at $360,000. That figure becomes the starting point for conversations about what deposit level you can achieve on the second property, whether you need to pay lenders mortgage insurance, and how much additional borrowing you'll require. The calculation shifts if you're willing to accept a higher interest rate or pay LMI to access more than 80% of the property value, but that introduces ongoing costs that need to sit alongside your broader financial picture.
Ready to get started?
Book a chat with a Mortgage Broker at Blackfish Finance today.
Structuring the Loan Across Two Properties
The loan structure determines whether you're setting up a cross-collateralised loan or keeping the properties separate. Cross-collateralisation means both properties secure both loans, linking them together under one lending arrangement. Keeping them separate means each property secures only its own loan, often with different lenders.
Cross-collateralisation can make the initial approval process more direct because you're dealing with one lender assessing the combined security. It also means any future refinancing, sale, or change to one property requires the lender's consent on both. Separate structures give you more flexibility to sell or refinance one property without affecting the other, but they often require more equity upfront because each lender assesses their security in isolation. We regularly see buyers choose separate structures when they're purchasing an investment property and want the option to refinance or sell independently down the line. The decision should account for what you're likely to do with both properties over the next five to ten years, not just what gets you across the line today.
Borrowing Capacity With Two Mortgages
Lenders assess your ability to service both loans simultaneously, not just whether you have enough equity to access. Your income needs to cover the repayments on your existing home loan, the new loan for the second property, and any other debts or commitments, with room left over to meet the lender's serviceability buffer.
If the second property is an investment, lenders will include a percentage of the expected rental income in their assessment, usually between 70% and 80% of the market rent. That rental income helps offset the loan repayments on the investment property, but it doesn't remove the need to demonstrate that your income can cover both loans if the property sits vacant. A buyer earning $120,000 annually with $320,000 owing on their home and looking to borrow an additional $450,000 for a second property will need to show that their income, plus any rental income from the investment, can service around $770,000 in total lending. Lenders also test this at a higher interest rate than you'll actually pay, typically adding a buffer of around 3%. That's where buyers sometimes discover their equity access doesn't translate to borrowing approval without adjusting the purchase price or loan structure.
Stamp Duty and Holding Costs on the Second Purchase
Accessing equity covers the deposit, but the second property still attracts stamp duty, conveyancing, and other settlement costs. In South Australia, stamp duty on a $500,000 property sits at around $21,330, and that's calculated on the full purchase price regardless of how much you're borrowing.
If you're buying an investment property, you won't have access to first home buyer concessions or exemptions, so the full stamp duty applies. Some buyers roll these costs into the loan by borrowing slightly more than the purchase price, but that increases the loan-to-value ratio and may push you into LMI territory if you're close to the 80% threshold. Settlement costs, building and pest inspections, and any immediate repairs or improvements also need funding. These aren't usually covered by the equity you're accessing for the deposit, so they either come from savings or get added to the loan. Holding costs on an investment property, including council rates, insurance, property management fees, and any periods without rental income, should sit in your calculations before you commit to the purchase.
How Adelaide's Property Market Affects Equity Growth
Property values in Adelaide have shifted over recent years, and that movement directly impacts how much equity you've built. Suburbs like Prospect, Unley, and parts of the inner west have seen notable growth, while other areas have remained relatively flat.
If your existing property has increased in value since you purchased it, you may have more equity available than you realise. Lenders base their equity calculations on a current valuation, not what you paid. A property purchased in Glenelg five years ago may have appreciated enough to provide substantially more usable equity than the buyer initially expected, opening up options for a second purchase without additional savings. Conversely, if your property's value hasn't moved or has declined, your equity position may be tighter than anticipated. That's particularly relevant for buyers who purchased during a peak or in areas where values have softened. A valuation before you start the process gives you a clear picture of what you're working with and whether the second purchase is within reach now or requires more time.
Tax and Offset Considerations for Investment Purchases
If the second property is an investment, the loan structure affects your tax position. Interest on the investment loan is generally tax-deductible, but interest on the portion of your home loan that remains for your own residence is not.
Keeping the loans separate, or at minimum keeping clear records of what was borrowed for what purpose, ensures you can claim the deductions you're entitled to without complications at tax time. Offset accounts work differently depending on which loan they're attached to. An offset against your home loan reduces non-deductible interest, which saves you money personally but doesn't create a tax benefit. An offset against your investment loan reduces deductible interest, which saves you money on the loan but reduces your tax deductions. Some buyers use offset accounts strategically, directing surplus funds to the home loan offset to minimise personal interest while letting the investment loan run without offsets to maximise deductions. That approach requires enough cash flow to be comfortable with both loans running in full, and it's not suitable for everyone, but it's worth considering if tax efficiency matters to your situation.
When Refinancing Unlocks More Equity
Sometimes the equity is there, but your current lender won't let you access it, or their rate and structure don't suit a second purchase. Refinancing your existing home loan to a different lender can unlock equity that's otherwise tied up, particularly if your current lender has tighter serviceability rules or won't lend across two properties.
Refinancing also gives you the opportunity to restructure your loans, split them between fixed and variable, or move to a lender that offers better investor loan rates if the second property is an investment. The cost of refinancing, including discharge fees from your current lender and application fees with the new one, should be weighed against the benefit of accessing the equity or securing a lower rate. In our experience, buyers who've been with the same lender for several years often find that refinancing not only gives them access to equity but also reduces their interest rate enough to offset the cost of the switch within the first year.
Call one of our team or book an appointment at a time that works for you. We'll assess your equity position, work through the numbers on both properties, and structure the loans in a way that aligns with where you're heading, not just where you are now.
Frequently Asked Questions
How much equity do I need to buy a second property?
You typically need enough equity to provide at least a 10-20% deposit on the second property, plus cover stamp duty and settlement costs. Lenders usually require you to maintain at least 20% equity in your existing home, so your usable equity is calculated as 80% of your current property value minus what you owe.
Can I use equity to avoid paying lenders mortgage insurance on the second property?
Yes, if you can use enough equity to provide a 20% deposit on the second property, you'll generally avoid LMI. If your equity only covers a 10% or 15% deposit, you may still need to pay LMI on the second loan unless you're using a guarantor or a specific lender program.
Should I cross-collateralise both properties or keep them separate?
Cross-collateralisation can simplify the initial approval but locks both properties together, making future refinancing or selling more complex. Keeping them separate provides more flexibility but often requires more equity upfront and may involve dealing with multiple lenders.
Does rental income from an investment property help with borrowing capacity?
Yes, lenders typically include 70-80% of expected rental income in their serviceability assessment. However, your personal income still needs to demonstrate you can cover both loans if the property is vacant, so rental income helps but doesn't replace serviceability requirements.
Do I need to refinance to access equity for a second property?
Not always, but refinancing can unlock more equity if your current lender has restrictive policies or higher rates. It also gives you the opportunity to restructure your loans and potentially secure lower interest rates across both properties.
