Is there a penalty for renting out your owner-occupied home?
Banks and lenders consider owner-occupiers and investors differently, and offer different kinds of home loans to each. Therefore, if you have an owner-occupied home and rent it out without telling your lender first, you could face serious consequences.
If you apply for a home loan as an owner-occupier but you actually intend to use the property as an investment, your lender might deny your application if it becomes aware. Being denied a loan could mark your credit score, meaning other lenders might be more reluctant to approve you for a loan in future.
Taking out an owner-occupier loan on a property intended to be an investment may also be considered fraud.
If you already own a property as an owner-occupier and intend to move out so you can rent it, you should inform your lender. If it comes to light that you’ve been making rental income while still on an owner-occupier loan, your lender could make the decision to recall the loan, as you may have breached its terms and conditions. This means that you might be given a short window to repay the balance owing.
If you’ve bought a home using a first home buyers scheme, grant, or stamp duty concession, it may be a condition that you live in the property for a set period of time. If you move out or lease it within that period (normally 12 months), you might be forced to repay the value of the benefit you’ve received. This may also be the case if your state offers stamp duty discounts or grants to select owner-occupiers.
How are owner occupier and investment home loans different?
Home loans for investors tend to come with higher interest rates than owner occupier loans, because lenders tend to view investment home loans as slightly riskier. For example, if you are unable to find a tenant for your property and it sits vacant for a period of time, or if your tenant damages the property, you may find it more difficult to pay your mortgage.
If you have a home loan as an owner-occupier and you decide to turn your property into an investment, you may need to refinance. If you do this, the terms of your new mortgage could change and your lender could charge you a higher interest rate.
Can you rent out an owner-occupied home in Australia?
You may be able to rent out a portion of a property while holding an owner-occupied home. For example, renting out a room in your home may allow you to stay on an owner-occupied home loan while generating some extra cashflow.
Do banks check owner-occupancy?
There are common criteria banks and lenders will look at when determining if a property is your primary residence. For example, a house is your primary residence if:
- You live at the property for the majority of the year,
- you have documentation such as tax returns or a driver’s licence that shows the property as your primary residence,
- and the property is within a convenient distance to your place of employment.
Taking out a new owner-occupier home loan or updating your postal address with your lender can alert it that you’re likely renting out your original home.
Similarly, if you’ve claimed government support or concessions to buy a home as an owner-occupier, the relevant governments will likely check to make sure you’re living there. If a rental bond is taken from a tenant moving into the property or if you don’t switch your official address to your new place, that may lead to extra queries.
What is a main residence for tax purposes?
Whether your home is your principal residence in your lender’s eyes is a different question to whether it’s your main residence for tax purposes. According to the Australian Taxation Office (ATO), a dwelling you own (with or without a mortgage) is generally considered to be your main residence if:
- You and your family live in it
- Your personal belongings are in it
- It’s the address your mail is delivered to
- It’s your address on the electoral roll
- Services such as gas and power are connected to it
Whether a property is considered your main residence can have tax implications. For example, you don’t generally have to pay Capital Gains Tax (CGT) when you sell your home.
According to the ATO, you can continue to treat a home you own and have lived in as your main residence for up to six years for CGT purposes, even if you do not live there anymore and use it to produce a rental income. That’s typically the case as long as you don’t own another property that you use as your principal place of residence in that time (for instance, if you rent your home from then on).
How do you convert your home loan from owner-occupier to investment?
If you wish to convert your existing mortgage from an owner-occupied home loan to an investment one, you have several options. You may be able to:
- Refinance your home loan with your existing lender and perhaps try and negotiate a favourable interest rate
- Refinance your home loan to another lender that may offer a more attractive interest rate or home loan package than your current one
- Consult with a mortgage broker, who may be able to recommend a lender or home loan package that suits your particular needs and circumstances
Can you still claim the negative gearing tax deduction if you rent out the family home?
From July 2027, the negative gearing tax deduction will be restricted to new properties that haven’t been lived in before. However, residential investment properties owned or under contract before May 12, 2026 are set to be grandfathered under existing negative gearing rules. This means, if you currently have a property as an owner occupier (that you bought prior to this date) and you plan to turn it into an investment property down the line, you may still be able to take advantage of the negative gearing tax deduction.
If you have any questions about tax liability or whether a home is considered your main residence, it may be worth speaking to an accountant or other tax adviser.
