Australian property investors are already seeing their borrowing capacity slashed by up to one fifth as a result of changes to negative gearing in the federal budget.
Macquarie, the nation’s fifth-largest lender, was first cab off the rank on Monday, notifying brokers that negative gearing would no longer be factored into serviceability calculations for established homes purchased after budget night on May 12, 2026.
Westpac, the third-largest lender, notified brokers on Tuesday that similar changes were coming. CommBank and NAB are still working through the details but are yet to make any announcements. ANZ and ING have been contacted for comment.
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Last Tuesday’s federal budget removed negative gearing — which allows investors to deduct rental losses from other income — for established homes starting from July 1, 2027.
Homes purchased after May 12 will be eligible for negative gearing, but only until June 30, 2027.
Generous grandfathering means existing investors who already negatively gear can hang onto their tax concessions.
Scott Adams, a Sydney-based broker with Aussie Home Loans, said it was “certainly a period of limbo” with most clients taking a “wait and see” approach as lenders worked through the changes.
He estimated that broadly the removal of negative gearing would reduce borrowing capacity by 10-20 per cent.
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“I did the numbers for a client this morning, they’ve got existing investment lending and are looking at acquiring another property,” he told news.com.au. “In the more conservative scenario, their overall borrowing capacity dropped by about 10-15 per cent, from about $1.3 million to $1.1 million to $1.125 million.”
Speaking to The Australian Financial Review on Monday, mortgage broker Alex Veljancevski estimated a borrower with an annual income of $100,000 and no existing debt could see their borrowing capacity for an investor loan fall from $750,000 to $600,000 – a 20 per cent reduction.
Jarden analyst Matt Wilson told Capital Brief on Monday a 25 per cent drop in new loans could result from the tax changes.
Refinance.com.au broker Aidan Hartley predicted a 30-40 per cent dip in investor loans.
“Banks are like dominoes. If one moves, they will all likely follow, which could have a huge effect on investor applications,” he told Capital Brief.
In its notice to brokers, Macquarie said while the changes had not yet been legislated, the government had indicated they would be effective as of Tuesday May 12, 2026 “and as such, it is a foreseeable change for customers that will impact their servicing capacity over the life of their loan”.
Contracts executed on or before May 12 will remain eligible for negative gearing in Macquarie’s serviceability calculations, while contracts executed after May 12 will only include negative gearing in serviceability calculations if the property meets the definition of a “new build” and genuinely adds to housing supply, as outlined in the budget papers.
“We’re working on an updated serviceability calculator and will share it with you once it’s ready,” the notice said.
“These changes are already effective for all applications. We’ll reach out to you directly if we need further details such as proof of a pre-12 May contract or ‘new build’ status.”
Investors looking to refinance with additional cash out will only have negative gearing factored into Macquarie’s serviceability calculations if those funds are to be used for the purchase of an investment property with a contract date on or before May 12, or the purchase of an eligible new build.
“In light of the federal budget, we have made changes to our investor lending policy to ensure we continue to comply with our responsible lending obligations,” a Macquarie Bank spokesman said.
“These changes help us ensure property investors are able to afford their loan when the changes to negative gearing come into effect.”
A Westpac spokesman said the bank was “yet to change its existing policy, however has written to its lenders and brokers advising there may be changes in the future”.
Mr Adams said he was “having a lot of conversations with people around assessment of borrowing capacity in this period of limbo”.
“The directive from Westpac and St George is it’s business-as-usual on transactions that are currently occurring,” he said.
“Macquarie, it’s nice they’ve released that clarity but without their serviceability calculator it’s still a bit unclear where lineball serviceability will fall.”
Mr Adams said the mood among clients was “waiting and seeing”.
“I’ve got a number of clients in the process of getting pre-approval for existing properties to add to portfolios,” he said.
“A lot of them are seasoned investors, essentially [they] are in no rush now. [Given] the general market conditions, they’re not worried about missing the boat and missing 5-6 per cent growth in the next six months if they hold off. A lot are sitting on their hands. I wouldn’t say [they are] freaking out.”
He added, “The irony is the ones that are most spooked and pulling out are the first or second property buyers in the younger demographic who this was supposed to help.”
Taylor Blackburn, personal finance expert at comparison website Finder, said for many investors “this policy change could be a massive haircut to their financial future”.
“If you were planning to buy an established property to get ahead, the goalposts just moved while you were mid-kick,” Mr Blackburn said.
“For years, Aussies have been told to buy ‘capital growth’ properties and let the taxman cover the losses. For better or worse, that era is over. The worst place you can be right now is stuck with a lender who knows you can’t leave.”
The removal of the negative gearing “add-back” in servicing calculators would mean for many buyers their “serviceability has tanked” and “you’ve lost your bargaining chip”, Mr Blackburn said.
“Before you even think about buying another property, call your current bank and ask for a loyalty discount,” he added.
“You have to fight for a better rate now while you still have some leverage, because if you wait until other banks deem you ‘unserviceable,’ you’re a sitting duck for rate hikes. Moving forward, if the property doesn’t pay for itself — or come very close — on day one, it’s no longer a viable investment for the average worker.”
In a recent Finder survey, 53 per cent of mortgage holders ranked housing costs as their most stressful expense, while 39 per cent said they were struggling to pay — the highest rate since November 2024, when it was 40 per cent.
Australian borrowers have been hammered by three rate hikes in a row, after the Reserve Bank increased the cash rate to 4.25 per cent earlier this month.
Minutes of the May meeting released on Tuesday suggest board members left the door open to another rate rise in June, although the RBA sees room to avoid a fourth consecutive hike despite rising inflation.
According to Finder’s survey, just under one in 10 (9 per cent) of mortgage holders said they could no longer sustain the cost of another rate rise — equivalent to 297,000 on the brink of default.
Another 3 per cent — equivalent to 100,000 borrowers — said they were already on the brink and could not absorb May’s increase.
“We are seeing a ‘perfect storm’ for homeowners,” Mr Blackburn said.
“With 40 per cent of mortgage holders now struggling — the highest since late 2024 — the buffer that many built up during the pandemic has officially evaporated.
“Most alarming is the ‘edge of the cliff’ data — nearly 300,000 Aussies admit they simply cannot handle another rate rise.
“We’re no longer talking about lifestyle sacrifices like fewer coffees — we’re talking about the very real threat of 100,000 families defaulting.”
Mr Blackburn urged borrowers to “refinance now”.
“If you haven’t checked your rate in the last six months, you are likely paying the “loyalty tax.
“For the 9 per cent on the brink, now is the time to contact your bank’s hardship team before a missed payment, not after.”
Mortgage interest revenue to Australia’s banks rose at an annualised 14.1 per cent over the past five years to reach $155.1 billion, according to research firm IBISWorld.
“However, narrowing interest spreads due to soaring interest rates and rising competition have weakened profitability over the past five years,” writes IBISWorld analyst Matt Reeves.
Revenue is forecast to “inch upwards” at an annualised rate of 0.6 per cent over the five years to 2030-31 to $160.2 billion.
“A stronger cash rate means more interest income from existing home loans, but also steeper funding costs,” Mr Reeves said.
“Moreover, increasing loan rates are obstructing prospective homeowners from entering the market, which will slow demand for new home loans.”
