Negative gearing changes - Investors borrowing capacity will likely fall 15%-30%

As a property investor yourself we thought you might find this update interesting.

Like you, we have been watching what is being floated in the media about the proposed changes to negative gearing in the upcoming budget.

It looks like negative gearing for new property purchases won’t be allowed (possible carve out for new builds). Existing arrangements look like they will be grandfathered.

BUT! what is being overlooked is how lenders will deal with the proposed changes.

I seriously doubt lenders will treat existing investment loans (with negative gearing benefits) and new investment loans (without negative gearing benefits) differently in their calcs so I would think all investment loans lose their negative gearing “add back” in the lenders calcs which will have a dramatic effect on borrowing capacity.

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THE MECHANICS

What the negative gearing addback actually does to servicing

When your investment property costs more to hold than it earns in rent, you generate a rental loss. AKA negative gearing. The loss reduces your taxable income and the ATO then effectively subsidises part of your holding cost through a tax refund.

A number of lenders recognise this tax refund as effective income when calculating serviceability. It is added back to your assessed income before the lender tests whether you can service your loans. This addback has quietly boosted investor borrowing capacity for years.

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THE IMPACT

How much borrowing capacity will decrease (a lot)

When your investment property costs more to hold than it earns in rent, you generate a rental loss. AKA negative gearing. The loss reduces your taxable income and the ATO then effectively subsidises part of your holding cost through a tax refund.

A number of lenders recognise this tax refund as effective income when calculating serviceability. It is added back to your assessed income before the lender tests whether you can service your loans. This addback has quietly boosted investor borrowing capacity for years.

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WHAT TO D

Three practical steps before 12 May 2026 

*If you were planning to refinance or get cash out or both. Let’s do it now! We probably have a few weeks to act.

*Know which lenders use the addback. A broker should model your specific profile across lenders that do and don't apply the addback now. The difference is already meaningful, and post-reform it could determine whether your next purchase is serviceable at all.

*Don't panic. Grandfathering for existing holdings is widely expected. Your current negatively geared properties are very unlikely to be affected — only new loans on established properties purchased after any commencement date would be caught. Eventually lenders will likely find a way to boost capacity for investor (reduced rental shadings for eg) but I suspect this will take a year or more post the change.