Negative gearing changes and your borrowing capacity

Published 18 September 2026 · Updated 18 September 2026 · 7 min read · By Shane Heness, mortgage broker

Almost every investor conversation we have had since May has started in the same place. Someone has a pre-approval from earlier in the year, they have found a property, and the number has moved. Usually a long way. The tax law has not changed yet. The lending has.

This article is about the lending side, because that is my job. The tax treatment of your own portfolio is a question for your accountant, and the two are not the same conversation.

What was announced, and when it actually starts

From 1 July 2027, negative gearing on residential investment property is limited to new builds. Net rental losses on a residential dwelling acquired after 7:30pm AEST on 12 May 2026 become quarantined, meaning they can be offset against residential property income rather than against your salary or other income. Dwellings acquired before that time are grandfathered and keep the current treatment.

The same package replaces the 50 per cent capital gains tax discount for individuals, trusts and partnerships with cost base indexation plus a minimum 30 per cent tax rate on net capital gains, also from 1 July 2027, with a deemed disposal and reacquisition on that date to reset cost bases. New residential dwellings and affordable housing can elect to keep the 50 per cent discount. That part is squarely accountant territory and I am not going to pretend otherwise.

The lending point is simpler. Fourteen months before any of this takes effect, lenders had to decide how to assess a loan that will still be on the books in 2027.

Why your borrowing capacity moved in May, not 2027

A number of lenders used to add your expected negative gearing tax benefit back into your assessable income. On a property running at a cash flow loss, that refund was real money and it was counted. Responsible lending obligations require a lender to assess your position over the life of the loan, so once the restriction was announced, lenders that were adding the benefit back had to stop doing it for purchases that will be caught.

Almost the entire major lender panel moved on this within weeks of the announcement, and they did not all move the same way. Some removed the tax add-back from the servicing calculator outright. Others kept it but applied it only where a purchase contracted after 12 May 2026 qualifies as a new build. A few reserved the right to reassess applications that were not yet unconditionally approved. Servicing policy has kept moving since and calculators change without notice, so the only number worth relying on is a current assessment run against the specific lender you are applying to.

It is also worth noting that lenders have been loosening elsewhere to keep investor volume. Westpac cut its minimum investor deposit to 5 per cent with lenders mortgage insurance and extended maximum interest only terms to 15 years on eligible loans up to 80 per cent LVR in July 2026. Tighter on tax, looser on structure. The net effect on any one borrower depends entirely on which lever matters more in their file.

What it does to a real number

The published examples through mid 2026 were consistent with what we were seeing. One borrower's pre-approval fell from around $1.7 million to around $1.27 million once the add-back came out. Another case, a borrower on a $100,000 salary, moved from roughly $675,000 to roughly $490,000, a drop of about 27 per cent. Broker modelling of the same borrower profile commonly landed on a 20 per cent reduction.

Two things are worth separating here. Your repayment has not changed. Your actual cash flow on a property you already own has not changed. What has changed is the size of the loan a lender will approve on your next purchase, and for a lot of investors that is the binding constraint rather than affordability.

The spread between lenders also widened. When most calculators treated the benefit the same way, lender selection moved capacity by a modest margin. Now the difference between the most and least generous assessment on an investor file is large enough to decide whether a purchase happens at all. If you want the longer version of how this compounds across a portfolio, our article on buying your second, third and fourth investment property covers rental shading and debt to income caps.

New builds are now a finance decision, not just a preference

The exemption for new builds is the single most important planning point in the whole package, and it flows straight through to how the loan is written.

General position across the LoanBuddy panel at September 2026. Individual lender definitions vary and are the thing to confirm before exchange.

The practical consequence is that a lot of investors who would never have considered building are now pricing it. That is a different loan and a different process: progress payments rather than a single settlement, a builder the lender will accept, interest only on the drawn balance during construction, and a longer runway. Our articles on how construction drawdowns work and knockdown rebuild finance in NSW cover what that actually involves, and the construction loans page sets out how we run them.

If you already own investment properties

• Dwellings acquired before 7:30pm AEST on 12 May 2026 are grandfathered. Contract date is generally what sets the acquisition date, so a contract exchanged before budget night that settled later is usually still grandfathered. Confirm that with your accountant rather than assuming it.
• Refinancing a grandfathered property does not change when you acquired it. Refinancing is still worth doing on its own merits.
• Most lenders still apply the tax benefit to existing eligible properties inside a servicing assessment, so your portfolio is not reassessed from scratch. It is the new purchase that is treated differently.
• A pre-approval issued before May 2026 is not a reliable number. Have it re-run before you bid on anything.

The mistake I would most like investors to avoid is letting the tax tail wag the dog. A new build in a weak location bought for an exemption is still a bad purchase. The exemption changes the finance maths, not the property fundamentals.

If you want to know where you actually sit under the current calculators, our investment loans page explains how we approach it, or book a free call. Bring your last two payslips, current rental statements and your existing loan balances and we can usually give you a real number on the first call.

Frequently asked questions

Written by Shane Heness

Owner and mortgage broker at LoanBuddy, Parramatta NSW. Eight years as a mortgage broker and a property investor since 2015. Credit Representative #528658 under Australian Credit Licence #389328.