Equity is one of the most powerful tools available to Australian homeowners. But in my experience, it is also one of the most commonly misused. The difference between equity that builds wealth and equity that creates problems almost always comes down to one thing: whether you have a clear, well-structured strategy before you act.
HOW LENDERS ASSESS YOUR POSITION
Most lenders will advance borrowing up to 80 per cent of their assessed property value before Lenders Mortgage Insurance applies. That assessed value matters more than your own estimate. Most lenders use internal valuations, and with the rise of Automated Valuation Models, the same property can be assessed very differently from one lender to the next. Variances of up to 20 per cent for the same property are not uncommon. This matters more than most borrowers realise. If one lender’s valuation comes in 15 per cent below your expectation, the amount of equity you can access shrinks considerably. Comparing valuations across lenders, with a broker who knows which institutions are likely to assess your property most favourably, can make a material difference to what you are actually able to borrow.
Serviceability is the second hurdle, and in 2026 it is a meaningful one. APRA’s 3 per cent serviceability buffer means a loan priced at 6.5 per cent is stress-tested at 9.5 per cent. Borrowing above six times gross income attracts higher scrutiny from lenders, though deals up to eight times income are possible in the right circumstances with the right lender. The key is that these applications require stronger supporting evidence and a more tailored approach. Borrowing capacity is therefore tighter than the equity number alone suggests, and if your existing mortgage already represents a significant multiple of your income, equity release may be more constrained than you expect.
THE RIGHT WAYS TO USE IT
For investment property purchases, equity used as a deposit on a new asset keeps the borrowing secured against income-producing security, with rental income contributing to serviceability over time. The structure is well understood by lenders and, when the numbers work, relatively straightforward to execute.
Business acquisition is a different conversation. Lenders assess it through the lens of the business itself: trading history, cash flow consistency, industry profile, and the risk characteristics of the sector. Residential equity strengthens the security position, but it does not substitute for a business that stacks up commercially. The two need to work together.
In both cases the principle is the same. Equity deployed into an asset that generates income and builds value over time is equity being put to work.
BUSINESS AS AN EQUITY PLAY
For homeowners looking to diversify beyond property, business acquisition is frequently overlooked as an equity deployment strategy. Done well, it can deliver returns that a second investment property in the same market cannot.
Pharmacy is a strong example of the type of business that lenders respond well to. Government-backed PBS revenue, high barriers to entry, stable demand, and cash flows that are largely uncorrelated with the economic cycle make it a defensible credit proposition. The same logic applies to other well-run businesses in resilient industries. What lenders are looking for is predictability of income and a business that can credibly service its debt. Residential equity backing a strong business acquisition is a combination that experienced business lenders understand.
Preparation is what separates successful equity-backed acquisitions from costly ones. That means understanding the financials thoroughly before making an offer, working with a broker who knows business lending rather than only residential, and structuring the facility appropriately for the nature of the asset.
THE WRONG WAYS TO USE IT
Equity used to fund lifestyle spending, whether renovation beyond what adds genuine value, vehicles, or consumption, increases debt without increasing assets. It is a straightforward way to erode what has taken years to build.
Over-leveraging is a subtler risk. Borrowing capacity and borrowing appropriateness are not the same thing. Maximum available debt leaves no buffer for rate movements, vacancy periods, or unexpected costs. The serviceability buffer is a floor, not a target.
Pledging your home as security for a business you have not properly understood is one of the higher-risk positions in personal finance. The consequences of a business running into difficulty are difficult enough without your primary residence in the equation. This is not a reason to avoid business acquisition. It is a reason to get the assessment right before you proceed.
And acting without a defined repayment strategy is a structural mistake regardless of the purpose. Whether the plan is business cash flow, rental income, capital growth on sale, or a combination, it needs to be credible before the borrowing is in place, not after.
QUESTIONS WORTH ASKING YOUR BROKER
- What is my true serviceability position, stress-tested at the current buffer rate, across all existing debt?
- Where does my debt-to-income ratio sit, and how much headroom do I have?
- Does the asset I am acquiring generate sufficient income to meaningfully support the borrowing?
- What does a downside scenario look like, and can I absorb it without putting my primary residence at risk?
SUMMARY
The question is rarely whether you have enough equity. It is whether the strategy is sound, the asset is right, and the structure will hold up under pressure. Those three things, more than the equity figure itself, determine whether this ends well.
If you are thinking about putting your equity to work, we would love to chat. Reach out to the AP Finance team to talk through your options.
Written by Troy Schirmer, National Finance Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
Troy brings more than a decade of experience in banking and lending, having spent 11.5 years with NAB, including eight years as a Banker within NAB Health. He has supported clients across Victoria and nationally, helping finance the purchase of a wide range of businesses, from pharmacies and medical clinics to childcare centres and other commercial assets.
Highly experienced across business lending, home lending, and asset finance, Troy holds a Bachelor of Commerce with majors in Accounting and Finance, along with a Diploma of Financial Planning. He is known for his practical approach and ability to navigate complex lending structures with clarity and confidence.
Outside of work, Troy enjoys spending time with his family, travelling, watching just about any sport, and is a proud Essendon tragic – regardless of the score.