The federal government’s planned changes to negative gearing will do more than reshape investors’ tax positions.
They could significantly reduce how much property investors can borrow in the first place.
That’s the warning from Alex Veljancevski, mortgage broker and founder of Eventus Financial, who says lenders currently factor negative gearing tax benefits into their serviceability calculations – meaning the proposed reforms will directly affect loan approvals.
“Most people think negative gearing is just a tax refund at the end of the financial year, but lenders actually use those projected tax benefits to increase borrowing capacity upfront,” Mr Veljancevski said.
“If those benefits are reduced or removed for established properties, a lot of investors who qualify today may not qualify in the future.”
The 2026–27 Federal Budget proposes limiting negative gearing to new builds from 1 July 2027.
Investors purchasing established properties after Budget night would no longer be able to deduct rental losses against wages or salary income.
Mr Veljancevski modelled a scenario using a single applicant earning $100,000 gross per year, living at home with no existing debt and no rent obligations.
“Under current settings, this borrower can access approximately $750,000 for an investment loan, with negative gearing factored in,” he said.
“Remove negative gearing from the equation, and that same borrower can access approximately $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.”
The timing compounds existing pressure on investors.
Higher interest rates have already eroded borrowing power, with Mr Veljancevski noting that each 0.50 percentage point rate increase reduces capacity by approximately 5 per cent.
“Investors are potentially facing a double hit with higher assessment rates from lenders and reduced servicing benefits from negative gearing changes.”
The government projects the reforms will support around 75,000 additional homeowners over the next decade while slowing house price growth by around 2 per cent over several years.
Budget papers estimate rents would rise by less than $2 per week.
But Mr Veljancevski flagged potential consequences for rental supply if investor activity drops too sharply.
“We’ve already seen a lot of investors reassess their plans over the last couple of years because of what rising rates have done to their numbers,” he said.
“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 the government’s strategy relies on new builds – but that won’t happen immediately.
“The government is banking on new builds filling the gap,” he said.
“That may well happen, but it won’t happen overnight, and renters will feel any shortfall in the meantime.”
For investors considering established property purchases, Mr Veljancevski expects many will seek advice well ahead of the July 2027 implementation date.
“The main thing investors should understand is that this isn’t just about future tax returns,” he said.
“It could materially change how much a bank is willing to lend them in the first place, and that flows through to purchasing power, investment strategy and long-term wealth creation.”