How the Federal Budget is Changing Property Finance
The June 2026 Market Watch highlighted a property market that is becoming increasingly divided. While some markets continue to perform strongly, others are clearly slowing, and the impacts of the Federal Budget are now beginning to flow through borrowing capacity, lending policy and investor behaviour. Four weeks after the Budget announcements, we are starting to see the first real signs of how buyers, investors and lenders are adapting to the new landscape.
Joining Debra Beck-Mewing and Scott Hochgesang this month was mortgage broker and finance specialist Darryl Mutch from Mutch Financial Services, who provided frontline insights into how banks, investors and borrowers are responding to the proposed changes. While the legislation is still working its way through Parliament, many lenders and borrowers are already adjusting their plans based on the expectation that the major reforms will proceed.
Property market performance to 31 May 2026
The headline data for May showed increasing weakness in Sydney and Melbourne. Both cities recorded declines across all three major data providers (Cotality, Proptrack and SQM), marking the first time in recent months that every data source agreed that both markets were moving backwards. Sydney recorded falls ranging from 0.2% to 1.1%, while Melbourne recorded declines between 0.3% and 1.4%.
Brisbane and Adelaide continued to perform better, although growth has clearly moderated compared to the rapid gains of recent years. Perth remained one of the strongest performers nationally, although even there the pace of growth appears to be flattening. Meanwhile, Hobart and Darwin continue to show positive momentum, however both are small markets where individual transactions can have a disproportionate impact on results.
One of the key observations from this month’s discussion was the emergence of what Debra described as a ‘triple-speed market’. Properties priced below $1 million, particularly in locations with strong rental demand and favourable demographics, continue to attract significant buyer interest. The middle market remains highly dependent on property quality and location, while premium properties above $3 million are experiencing noticeably slower conditions and presenting increasingly attractive buying opportunities for well-positioned purchasers.
Rental markets remain under pressure
Rental markets continue to tell a very different story as rents are on the rise across the country.
Darwin and Hobart recorded some of the strongest rental growth, driven by low vacancy rates and limited supply. Perth and Brisbane continue to experience strong rental growth, while Sydney and Melbourne also remain firmly positive. Unit markets are showing similar trends, particularly in Perth and Darwin where supply remains constrained.
Importantly, the panel noted that the Budget changes have not yet flowed through to rental markets. Most tenants remain on existing leases and rent review cycles. Any supply impacts created by reduced investor activity are more likely to emerge over the next six to twelve months.
Market News
Beyond the Budget itself, several broader factors continue to influence the property market.
Surprising no one, the Reserve Bank left interest rates unchanged in June, although Darryl noted the RBA continues to signal that further increases remain possible if inflation pressures re-emerge. Concerns remain around fuel costs, global supply chains and the ongoing conflict in the Middle East (even if the new deal holds), all of which have the potential to place upward pressure on inflation if conditions worsen.
Major infrastructure projects also continue to shape long-term growth prospects. Western Sydney Airport remains on track for opening, while Brisbane’s Olympic preparations continue to generate discussion around housing, infrastructure and accommodation supply.
IN FOCUS – Budget impacts on finance
This month’s IN FOCUS segment put the spotlight on the impacts the Federal Budget (announced on 12 May 2026) is having on property buyers’ ability to access finance.
The panel re-capped the key Federal Budget changes that impact the property market. The first is the replacement of the 50% Capital Gains Tax discount with a new taxation framework. The second is the removal of negative gearing for future purchases of established residential investment properties, while retaining negative gearing for new builds. The third is the change to discretionary trust taxation arrangements.
It’s important to note that costs relating to property holdings can still be claimed, though this occurs when an owner sells a property, not annually which is the current approach.
While these changes have not yet been fully legislated, many investors are already adjusting their plans based on the expectation that the reforms will proceed largely as announced.
The biggest change: borrowing capacity
The panel agreed the most significant immediate impact is on borrowing capacity.
As Darryl pointed out, existing investors who already own investment properties remain largely unaffected because their existing arrangements are grandfathered. Similarly, homeowners who later convert their principal residence into an investment property will likely still retain access to negative gearing for the property they owned prior to 12 May 2026.
The biggest impact falls on new investors purchasing established properties. Investors in higher tax brackets can experience borrowing capacity reductions of 30% to 40%, depending on the lender and their circumstances. In practical terms, an investor who may previously have been able to borrow $1 million could now find their borrowing capacity reduced to somewhere between $600,000 and $700,000 if they’re pursuing an established property strategy.
Investors in lower tax brackets are generally less affected, particularly where rental income does not push them into a higher tax bracket. This means the impact of the reforms varies significantly depending on individual income and tax circumstances.
Alternative strategies gaining attention
The Budget changes are also prompting buyers to reconsider other strategies. The panel explored a range of options including property ‘swaps’, handling the family home in retirement and portfolio building approaches.
Many existing homeowners are exploring whether it makes sense to retain their current home as an investment property and purchase a new principal residence separately. Others are investigating commercial property opportunities, where negative gearing arrangements remain available.
There is also growing interest in self-managed super fund property investment. Notably, self-managed super funds were largely untouched by the Budget changes, and several lenders have begun re-entering that lending market. While SMSF strategies remain highly specialised and require careful advice, they are likely to attract increased attention from experienced investors over the coming years.
What this means for tenants
Unfortunately, the outlook for tenants remains challenging.
The panel’s view was that rental increases are likely to continue as supply shortages persist. Reduced investor activity may further constrain future housing supply, placing additional pressure on rents over time. At the same time, higher rents make it more difficult for aspiring buyers to save deposits and enter the market.
Final thoughts
The June 2026 Market Watch reinforced that the property market is becoming increasingly complex and highly dependent on individual circumstances.
The Budget changes have definitely adjusted the market, and created a broader range of ways to be successful. So while existing investors remain largely protected, new-build investors have gained an advantage though property selection will require a higher level of strategic selection. Investors targeting established properties will need to carefully assess borrowing capacity, and good cash flow will be an important factor to ensure properties can be held comfortably for the long term.
As always, the panel recommended that before making any major property decision, owners and buyers should review their position carefully, seek appropriate financial and taxation advice, and ensure their strategy is based on individual circumstances rather than broad market headlines. In a market that’s increasingly nuanced, tailored advice and disciplined decision-making have never been more important.
If you’d like to discuss your own property plans, book in for a Property Clarity Call here.
Author: Debra Beck-Mewing
Debra Beck-Mewing is the Editor of Property Portfolio Magazine and CEO of The Property Frontline. With over 20 years of experience buying property across Australia, Debra is a skilled property strategist and buyers agent known for uncovering tailored opportunities — from family homes to multi-use investments.
She has deep expertise in advanced strategies including renovations, granny flats, sub-division, and development. A Qualified Property Investment Advisor (QPIA®), licensed real estate agent, and holder of a Bachelor of Commerce and Master of Business, Debra combines strategic insight with hands-on experience.
Debra is the creator of the Property Smart Track System™ – a professional property buying system that enables buyers to select, assess and buy property independently in today’s market. She also leads Buy Like A Genius™, a premium end-to-end buyers’ agency service for busy professionals seeking expert property acquisition without the stress.
As a passionate advocate for greater transparency in the property and wealth industries, Debra is a sought-after speaker, author, podcast host, and participates on numerous committees including the Property Owners’ Association.
