Gearing in 2025: Strategies, Risks, and Opportunities for Australian Investors

In the ever-evolving landscape of Australian finance, ‘gearing’ is a term that’s impossible to ignore. For some, it’s the rocket fuel behind wealth creation. For others, it’s a fast-track ticket to sleepless nights and financial pain. As we settle into 2025, gearing has taken on new dimensions—thanks to shifting interest rates, fresh tax rules, and a property market that refuses to play by yesterday’s rules.

What Is Gearing? The Power (and Peril) of Leverage

At its core, gearing simply means borrowing money to invest. In Australia, it’s most commonly seen in property (think: home loans or investment property loans) and in shares (via margin loans). The big idea: if your investment earns more than your borrowing costs, you pocket the difference. If not, losses can be magnified.

• Positive gearing: Your investment income (like rent or dividends) covers your loan interest and expenses, and you may even see surplus cash flow.

• Negative gearing: Your investment income is less than your expenses, but you can offset this loss against other income for tax purposes.

In 2025, with the Reserve Bank keeping rates steady after a volatile 2023–24, borrowing costs are more predictable—but not cheap. Lenders have tightened serviceability assessments, and APRA’s 2024 reforms mean higher scrutiny for high-LVR loans, especially for investment properties.

2025 Policy Shifts: Tax Rules and Lending Clampdowns

This year, the federal government’s Stage 3 tax cuts are in force, and they’ve reshaped the value proposition for negative gearing. Middle-income earners now see less tax benefit from negative gearing compared to previous years, making positive gearing and capital growth strategies more attractive. The ATO has also ramped up audits on rental deductions, signalling that only genuine investment losses will be tolerated.

Meanwhile, APRA’s tougher lending rules mean:

• Maximum loan-to-value ratios (LVRs) on investment loans are capped at 80% for most borrowers.

• Interest-only periods are harder to secure, with most banks requiring a clear exit strategy and lower debt-to-income ratios.

• ‘Debt recycling’—using home equity to invest in shares or managed funds—remains popular, but banks now demand robust risk management plans.

These changes mean that getting highly geared is harder—and potentially riskier—than ever. Investors need to factor in rising living costs and more realistic capital growth forecasts, especially in major city property markets where price growth has cooled after the 2021–23 boom.

Real-World Gearing: Who’s Using It (and How)?

Gearing isn’t just for property tycoons. In 2025, savvy Australians are using leverage in more creative—and cautious—ways:

• First-time investors are teaming up (via ‘rentvesting’ or co-ownership platforms) to spread both risk and reward.

• Self-managed super funds (SMSFs) are using limited recourse borrowing arrangements (LRBAs) to access geared property or share investments, though new APRA reporting rules make transparency a must.

• Share investors are opting for margin loans but with lower gearing ratios, wary of volatility and the possibility of margin calls if the ASX stumbles.

• Green gearing is on the rise—using loans to fund solar or energy efficiency upgrades, with government rebates and low-interest ‘green loans’ making the maths more attractive.

Case in point: Emma, a 35-year-old Brisbane teacher, used a split loan facility to invest in both an ETF portfolio and a solar system for her investment property. The rental income covers most of her loan costs, and she’s banking on long-term growth—while keeping her gearing ratio under 60% to sleep easy at night.

Managing Risk: Smarter Gearing in 2025

With stricter lending and reduced tax benefits, the golden rule for 2025 is: don’t overextend. Here’s how investors are protecting themselves:

• Sticking to conservative LVRs: Most are keeping gearing below 70%, ensuring they can weather market dips or interest rate jumps.

• Building buffers: Savvy investors set aside cash for at least 6–12 months of loan repayments and maintenance costs.

• Diversifying assets: Rather than putting all their eggs in one property or share basket, many are spreading borrowed funds across asset classes.

• Reviewing tax positions: With ATO scrutiny up, investors are working closely with accountants to ensure all deductions are above board.

Technology is also lending a hand. Tools like digital property platforms, robo-advisers, and automated loan calculators make it easier to model scenarios and stress-test your gearing strategy before committing.

Conclusion: Is Gearing Right for You in 2025?

Gearing remains a powerful tool for building wealth—but the days of set-and-forget are over. With new tax rules, tighter lending, and a more cautious economic outlook, Australian investors need to be sharper than ever about how (and how much) they borrow. Take the time to crunch the numbers, weigh the risks, and consider whether gearing fits your goals and risk tolerance in 2025’s new financial reality.