‘Double hit’: Investors’ borrowing capacity likely to plunge 20% under budget reform

“If those benefits are reduced or removed for established properties, a lot of investors who qualify today may not qualify in the future,” he said.

Veljancevski said a single applicant earning $100,000 gross per year, living at home with no existing debt and no rent obligations, can access $750,000 for an investment loan, with negative gearing factored in.

He said that when negative gearing was removed from the equation, the same borrower could only access around $600,000.

“That is a $150,000 reduction, or a 20 per cent drop in borrowing capacity, despite no change to income, expenses or interest rates,” he said.

“A 20 per cent reduction in borrowing power is the difference between being able to buy in a suburb you want to invest in and being priced out of it entirely.”

Veljancevski noted that borrowing capacity was already strained following interest rate rises, with each 0.50 percentage point increase reducing borrowing capacity by about 5 per cent.

“Investors are potentially facing a double hit: higher assessment rates from lenders and reduced servicing benefits from negative gearing changes,” he said.

While the reforms were designed to improve affordability for owner-occupiers, slowing house price growth by 2 per cent over several years, Veljancevski said there could be unintended consequences for rental supply if investor participation declined too sharply.

He said he had already seen many investors reassess their plans over the last couple of years, as a result of rising rates affecting their portfolios.

“If you then layer on a 20 per cent hit to borrowing capacity because negative gearing is no longer part of the servicing equation, fewer investors can qualify for loans, and you could eventually see less rental stock entering the market,” he said.

Another estimate from the budget was that rents would rise by less than $2 per week following the reforms, but Veljancevski said the long-term response from the market would depend on how quickly new housing supply came online.

“The government is banking on new builds filling the gap. That may well happen, but it won’t happen overnight, and renters will feel any shortfall in the meantime.”

Ahead of the July 2027 starting date, Veljancevski said investors considering purchasing established property would likely be seeking advice, warning the reforms weren’t simply about future tax returns.

He said in Australia, property investment was one of the main pathways for long-term wealth creation, and changing borrowing capacity would affect buyers’ purchasing power and strategy.

“If borrowing becomes significantly harder for future investors, there’s a broader conversation around what that means for long- term financial security and passive income generation,” Veljancevski concluded.

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