The 2026 budget debate has been dominated by tax — CGT indexation, the 50% discount, the July 2027 cut-off. But there's a second-order impact that has received almost no attention: the changes to negative gearing directly affect how much banks are willing to lend investors on established residential properties purchased after 7:30pm on 12 May 2026. For a typical investor in the 37% bracket with a single negatively geared property, the reduction in borrowing capacity is likely to be in the range of 10–15%. Investors with multiple properties or larger rental losses could see a larger impact. Here's why — and what to do about it.
How Banks Currently Calculate Investor Borrowing Power
When a bank assesses how much an investor can borrow, they don't just look at salary. They look at total income — and for negatively geared properties, that calculation has always included the expected annual tax refund generated by the rental loss.
How the Negative Gearing Tax Benefit Becomes Assessed Income
| Item | Amount |
|---|---|
| Gross rental income | $35,000/year |
| Property expenses (interest, rates, maintenance) | $50,000/year |
| Net rental loss | $15,000/year |
| Annual NG tax refund (37% bracket, 39% effective with Medicare) | $5,850/year |
Banks add that $5,850 annual tax benefit back into your assessed income. It is real money — it reduces your after-tax holding cost — and lenders have historically recognised it. Over a 30-year loan term, that annual benefit totals over $165,000 in nominal terms.
What Changes for Properties Purchased After 7:30pm 12 May 2026
For established residential properties purchased after the budget cut-off, negative gearing losses can no longer be offset against salary from 1 July 2027. Losses carry forward against residential property income only.
From a lender's perspective, this changes the income equation significantly. The expected annual tax refund — which was included as assessed income — no longer exists in the same form from July 2027 onwards. Lenders who update their serviceability calculators to reflect the new rules will need to remove or substantially reduce the NG tax benefit from their income assessments for affected borrowers.
The result: the same investor, on the same salary, buying the same property, will have a meaningfully lower assessed income — and therefore a lower maximum loan amount.
The Numbers — Worked Example
The size of the impact depends on the size of the rental loss, your marginal tax rate, and how your lender treats the NG benefit in their serviceability model.
Worked Example — Single Investment Property, 37% Tax Bracket
Salary $150,000. Rental income $32,000/year. Total property expenses $47,000/year. Net rental loss $15,000/year.
| Old rules | New rules | |
|---|---|---|
| Annual NG tax benefit included in income | $5,850 | $0 |
| Total assessed income | $155,850 | $150,000 |
| Indicative borrowing capacity | ~$935,000 | ~$900,000 (−$35,000) |
For a single property in the 37% bracket, the impact is approximately 4–5%. The effect compounds with tax bracket and number of properties. An investor in the 47% bracket (49% effective) with a $25,000 annual rental loss loses approximately $12,250/year in assessed income — reducing borrowing capacity by around $70,000–$80,000. Investors with two or three negatively geared established properties can see reductions of 15% or more on their total borrowing ceiling.
The Wages Data Adds Another Layer — And What It Means for June
On 14 May, the ABS released the March 2026 quarter Wage Price Index, showing wages grew 0.8% for the quarter and 3.3% annually — slightly softer than the 3.4% annual rate recorded in the December 2025 quarter, and below the approximately 3.5% annual rate the RBA has indicated would add to its inflation concerns.
For investors trying to model their borrowing capacity in a rising-rate environment, the WPI result matters for two reasons.
First, softer wage growth makes it harder to absorb higher repayments over time — particularly for investors whose rental income doesn't fully cover costs.
Second, the WPI result feeds directly into the RBA's June 16 decision. The June rate outlook is more divided than at any previous point in this cycle:
Major Bank Forecasts — June RBA Decision
| Bank | June forecast | Peak rate |
|---|---|---|
| CBA | Hold at 4.35% | 4.35% |
| ANZ | Hold at 4.35% | 4.35% |
| NAB | June hike a live possibility | 4.60% |
| Westpac | Hold (hikes Aug & Sep) | 4.85% |
Investors extending themselves right now are doing so against an interest rate outlook that remains genuinely uncertain. The April Labour Force Survey — due 21 May — is the final major data point before the June 16 decision.
Who Is Affected and Who Isn't
| Investor type | Borrowing capacity impact |
|---|---|
| Bought before 7:30pm 12 May 2026 | No change — fully grandfathered, lenders can still credit the NG benefit |
| Buying established property after cut-off | Reduced — NG tax benefit removed from assessed income once lenders update calculators |
| Buying a new residential build | No change — NG exemption preserved, serviceability models unchanged |
| Shares, ETFs or commercial property | No change — negative gearing rules for non-residential assets are unchanged by the budget (note: CGT indexation changes do apply to shares and ETFs held outside super) |
What Investors Should Do Now
- Get assessed now, before lenders update their calculators. Some lenders have not yet updated their serviceability models to reflect the new rules. If you are planning to purchase an established investment property, getting a formal assessment now — while calculators may still reflect the old settings — could give you a more favourable borrowing limit. This window will close as lenders update their systems over coming months.
- Run both scenarios with a broker. A mortgage broker can model your borrowing capacity under both the old and updated calculator settings, across multiple lenders. Given that lenders will not update at the same pace, the spread in outcomes across institutions can be significant for the same borrower on the same purchase.
- Consider whether a new build changes the equation. New builds preserve both the negative gearing deduction and the lender's ability to include the tax benefit in serviceability — making them more attractive not just from a tax perspective, but from a financing one. See our construction loan guide for how the financing works.
- Don't overextend at 4.35% assuming rates fall quickly. With WPI at 3.3% and trimmed mean inflation still well above target, a rate cut before mid-2027 remains unlikely. Model your repayments at current rates and stress-test at 4.60–4.85% before committing. Our June RBA outlook article has the full picture on where rates are heading.
Written by Amit Narang, Mortgage Broker | Credit Representative 558902 of Outsource Financial Pty Ltd (ACL 384324)
Sources: ABS, "Wage Price Index, Australia, March 2026"; Westpac IQ, "Q1 Wage Price Index: public wages moderate"; Aussie, "Should you buy an investment property before 1 July 2027?"; William Buck, "Federal Budget 2026: Negative gearing"; Australian Government, "Negative Gearing and Capital Gains Tax Reform" factsheet.
Want to Know Your Borrowing Capacity Under the New Rules?
Not all lenders have updated their serviceability calculators yet — and the difference between institutions can be significant. We can model your borrowing capacity across multiple lenders under both the old and new settings, so you know exactly where you stand before you commit to a purchase.
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