New investor loans fell 30.6 per cent in the September quarter to 35,301, marking the largest quarterly decline since the series began and almost double the previous record.
The total value of new housing lending also fell by a record 15.5 per cent, according to the latest lending data.
However, Ray White Chief Economist Nerida Conisbee said the decline in investor activity had not translated into increased participation from first home buyers, despite this being one of the arguments behind the Federal Government’s housing changes.
“Investor lending has fallen at a pace we have never seen before. One of the arguments for the Federal Government’s housing changes was that reducing investor competition would make it easier for first home buyers to enter the market. The latest lending data suggests this is not happening. Instead, both groups are pulling back.”
The number of first home buyer loans fell 8.6 per cent over the quarter to 26,415, the lowest level since the end of 2022.
Since lending peaked in the December quarter last year, investor loans have declined 43 per cent, while first home buyer loans have fallen 16 per cent.
Higher borrowing costs weigh on buyers
The December lending peak followed the expansion of the 5 per cent deposit scheme in October 2025.
Since then, five interest rate increases have pushed the cash rate to 4.85 per cent, an 18-year high, reducing borrowing capacity for both investors and owner occupiers.
Ms Conisbee said the latest figures also raised questions about how the Government was measuring the success of its housing policies.
The Federal Government has pointed to an increase in the proportion of new loans going to owner occupiers, from 59 per cent before the Budget to 68 per cent, as evidence of progress.
However, she argued the shift reflected a sharper decline in investor borrowing rather than an increase in the number of Australians purchasing homes.
“First home buyer loans are now around 3,700 lower than a year ago, while owner occupier lending fell 9.8 per cent in the September quarter. There are fewer first home buyers taking out loans, not more. It is difficult to see this as evidence of a successful policy.”
New housing investment remains under pressure
Beyond the decline in lending, Ms Conisbee said the figures raised concerns about the outlook for new housing construction.
One objective of restricting negative gearing to new homes from July 2027 was to encourage investors to direct more money towards newly built properties rather than established housing.
While a greater proportion of investor lending is now going towards new homes, the overall number of loans financing new housing has remained largely unchanged.
Investor loans for construction and newly built homes have remained at around 9,700 per quarter over the past year, while construction loans to investors fell 11.8 per cent in the September quarter.
Over the same period, investor loans for established homes have halved since December.
“Investors are clearly leaving the established housing market, but there is little evidence that they are shifting their investment into new housing.”
She warned that further weakness could emerge as the full impact of the Government’s Budget measures flows through to lending figures.
The ban on new self-managed superannuation fund (SMSF) borrowing for residential property took effect on 10 August, although purchases contracted before that date could still proceed.
Unlike the negative gearing changes, the SMSF borrowing ban also applies to new homes.
This could have implications for developers, particularly in the apartment sector, where presales are often needed to secure construction finance.
Industry estimates cited by Ms Conisbee suggest SMSF investors alone have accounted for at least 30 per cent of apartment presales.
“With SMSF borrowing now banned, other investors retreating and higher interest rates making developments more difficult to finance, it is increasingly unclear who will fund new housing construction.”
Rising construction costs are adding further pressure, with Ms Conisbee forecasting a decline in dwelling investment over the next 12 months.
Rental returns could determine investor recovery
She said the outlook for investor participation would also depend on whether rental returns improved enough to offset the impact of the Government’s housing changes.
Her earlier analysis found rental yields would need to increase from around 3.95 per cent to 5.15 per cent to compensate investors for the Budget measures.
Until returns improve, she believes a substantial recovery in investor activity is unlikely.
For the real estate industry, the figures highlight a potential challenge on both sides of the market, with fewer investors purchasing established properties and limited evidence that their capital is being redirected towards new developments.
Ms Conisbee said the latest data demonstrated that reducing competition from investors did not necessarily improve access to home ownership or stimulate construction.
“The latest lending figures show that reducing investor activity does not automatically lead to more first home buyers entering the market. Nor does it necessarily mean more investment in new housing.
“Australia needs substantially more homes. At the moment, the policies designed to encourage new supply appear to be reducing the number of people willing to finance it.”