Surprise! Investor Borrowing Capacity Hasn't Fallen Off a Cliff

When the 2026 budget first landed, the headlines were alarming: investor borrowing capacity could drop by 20% - 30%, lenders could stop recognising negative gearing entirely, the property market was facing its worst correction in four decades.

Three weeks on, the picture that's emerging from the actual lender calculators is more nuanced — and arguably more reassuring — than the initial panic suggested.

Initial testing of lenders calcs shows an 8-12% drop in capacity for post budget purchases

Our testing of lenders new calculators points to borrowing capacity reductions in the range of 8–12% for affected scenarios — And based on what's now coming through across a range of lender tools, many scenarios are showing even less movement than that, particularly where the borrower has existing investment properties or where rental yields are reasonably strong.

How lenders are actually treating the new rules

ANZ, Suncorp, NAB, Macquarie and others have all updated their serviceability settings, but the way those updates work in practice is more sophisticated than simply stripping out tax benefits.

Most lenders are running a split-treatment approach: properties purchased before 12 May 2026 are fully grandfathered, with negative gearing continuing to be recognised in serviceability calculations as before. For new purchases of established dwellings after budget night, some lenders are not simply ignoring tax deductions altogether — instead, they are allowing interest expenses to offset rental income when calculating taxable income. The deduction still exists; it just can't flow through to reduce wage or salary tax.

That's a meaningful distinction. An investor buying an established property today isn't walking into a serviceability calculation with zero recognition of their property costs — the rental income and interest expense are still netted off, just within the property income pool rather than against their broader income.

We initially didn’t think the lenders would be able to handle the pre and post purchase complexity but with their business being writing loans it appears they made the decision to up their game!

Portfolio investors may fare better than expected

One of the less-reported features emerging from the new calculators is how lenders are treating investors who already hold property. Several calculators are allowing rents and interest expenses from existing (grandfathered) holdings to be pooled and offset against the cashflow position of new purchases that don't qualify for negative gearing. In practice, this means a well-structured portfolio with strong existing rent rolls can absorb a new purchase more comfortably than a standalone scenario would suggest.

The key variables still at play

That said, outcomes vary considerably depending on the borrower's situation:

• Single new purchase, no existing portfolio: Most exposed. The loss of wage-income offset is felt most acutely here.
• Existing portfolio adding a new property: Pooling provisions in several calculators provide meaningful relief.
• New builds: Fully exempt — negative gearing and CGT discount remain intact, and lenders are treating these identically to pre-budget rules.
• Refinances on existing holdings: Dollar-for-dollar refinances on properties purchased before 12 May 2026 continue to have negative gearing recognised in serviceability calculations.

The opportunity for investors

The market is experiencing a low ebb with many headwinds at the moment, and we expect this will create some serious opportunities out there for investors in the next 6-12 months. We do expect prices to soften quickly before stabilising.

We would be looking for the first rate drop or even a hint of one as a signal to buy. With the sluggish economy in general and increasing unemployment we expect this to happen later this year.

In summary the initial headlines created a lot of investor anxiety. The reality, as the calculators have come through, is that this is a recalibration — not a cliff edge. Investors who understand the nuances, and work with brokers who do too, are better placed than the early coverage suggested.

What to do now

It is an ideal time to look at cash out opportunities to park funds in offset / redraw if equity and borrowing capacity permit.

As the valuation algorithms get dialled down automated valuations (AVMs) will trend down making things a bit harder.

As always feel free to reach out to workshop your equity / borrowing capacity position.