Australia’s negative gearing reforms do not formally take effect until 1 July 2027, but many property investors are already feeling their first practical impact.
It is not showing up on a tax return. It is showing up in the bank’s serviceability calculator.
Since the 12 May 2026 Federal Budget, lenders have changed the way some investment properties are treated when assessing borrowing capacity. That means an investor may encounter the reform well before lodging the first affected tax return simply because a bank is prepared to lend less today.
Property investing is moving away from a model where tax benefits help support the next purchase and towards one where cash flow, rental yield and borrowing capacity matter more.
Why investors are already being affected
From 1 July 2027, negative gearing on residential property will generally be limited to eligible new builds, while properties held before the Budget announcement are grandfathered. Investors who acquire established dwellings after 12 May can still generally use losses against residential property income and residential capital gains and carry unused losses forward, but not against unrelated income such as salary.
That distinction matters because mortgage serviceability is forward-looking.
Historically, some lenders recognised the tax benefit of a negatively geared property when assessing disposable income.
If the property loss reduced an investor’s personal tax bill, that benefit could help support the servicing calculation for additional debt.
For affected established properties bought after the Budget cut-off, that benefit is no longer generally recognised in the same way. The tax change may formally start in 2027, but the credit assessment has already changed.
How serviceability assessments are changing
Macquarie’s public broker guidance provides a useful example. For contracts entered into after 12 May, negative gearing is included in serviceability only where the property qualifies as a new build that genuinely adds to housing supply. Eligible pre-Budget investments and certain refinances retain more favourable treatment.
This does not mean every rental-property deduction has disappeared from lender calculators. Interest and property expenses can still be assessed against rental income, subject to lender policy. The key issue is whether an investment loss can reduce tax on non-property income in a way that improves the borrower’s assessed disposable income.
It also means the same borrower may receive a different serviceability result depending on what they buy. An eligible new dwelling, a grandfathered investment and an established property bought after the Budget cut-off may be treated differently even when the borrower’s salary and personal debts are unchanged.
Who is most exposed?
There is no reliable rule that every investor will lose 8%, 10% or 12% of borrowing capacity.
Outcomes depend on income, debt levels, rental income, expenses and lender policy. The investors most exposed are likely to combine three characteristics: high leverage, relatively low rental yields and a strong reliance on negative gearing benefits to support serviceability.
A higher-income borrower can sometimes be particularly affected because the tax benefit of a property loss may previously have been more valuable at a higher marginal tax rate. By contrast, a lower-leverage investor with strong rental income may see a much smaller change, while a positively geared property does not depend on a tax loss to support household cash flow.
Buyers of qualifying new housing may also retain more favourable treatment.
The reform therefore does not divide investors simply into winners and losers. It makes the financing outcome more dependent on the property’s cash flow and the borrower’s balance sheet.
Three practical questions before the next purchase
For investors considering another property, I would focus on three questions.
1. Does the property work without relying on the tax refund?
Calculate the ongoing position using realistic rent, interest, rates, insurance, maintenance, management costs and other expenses. If the household can only afford the property because of an expected future tax benefit, the investment is more vulnerable to tax, lending or interest-rate changes.
2. What does the purchase do to future borrowing capacity?
A property that appears affordable today may materially reduce the borrower’s ability to finance the next purchase. This is especially important for investors building a portfolio. The relevant question is not simply whether a lender will approve this loan, but what the balance sheet looks like after settlement.
3. Can the household carry the investment if rates rise again?
I would test the cash flow at mortgage rates another 0.25 to 0.50 percentage points higher. This is not a rate forecast; it is a resilience test. If a relatively small increase turns a manageable investment into a serious household cash-flow problem, the leverage may already be too aggressive.
Why cash flow and borrowing capacity now matter more
For many years, investors accepted low rental yields, borrowed heavily, relied on negative gearing to offset cash-flow shortfalls and counted on capital growth to fund the next purchase.
That model becomes harder to repeat when interest rates are high and lenders recognise less negative-gearing benefit when assessing the next loan.
Instead of asking primarily, “How much tax can I deduct?”, investors increasingly need to ask, “How much debt can this property actually support?”
That shifts attention towards rental yield, interest costs, ongoing expenses and the amount of household income required to hold the property.
A property with strong rental income and moderate debt may remain resilient. A low-yield property purchased with maximum leverage is far more exposed, especially where cash flow depends on annual tax refunds.
Eligible new housing retains negative gearing advantages, but tax treatment alone does not make a property a good investment. Purchase price, quality, construction risk, supply and rental demand still matter.
The important point is that tax treatment is becoming only one part of the investment equation rather than the feature that makes the financing work.
A different kind of property-investment discipline
The reforms do not make established property unattractive, nor will they materially affect every investor.
What they do is change the discipline around leverage.
Grandfathered properties and qualifying new builds retain advantages, while investors with strong cash flow may see only modest effects.
That is why I believe the first impact of negative gearing reform is not the future tax bill. It is the way banks are already assessing the next loan.
For investors, the implication is straightforward: cash flow, rental yield and financeability now deserve at least as much attention as the tax deduction.
The reform may ultimately prove to be less about whether investors continue to buy property and more about which properties they can finance, how much leverage they can safely carry and whether the investment can stand on its own without tax-driven support.
Sources checked: Australian Treasury 2026-27 Budget tax changes; Treasury Laws Amendment (Tax Reform No. 1) Act 2026; Macquarie Broker Help Centre; APRA macroprudential policy settings.
Jade Xie is Managing Director of Easyhome Mortgage and has approximately 25 years of experience across finance, banking and credit in Australia and New Zealand. She is also an experienced property investor and financial commentator, with a particular interest in housing finance, household borrowing capacity, interest rates and property policy.
This article is general market information and financial commentary only. It is not tax, legal, credit, financial or property-investment advice. Lending policies, tax rules and individual borrowing outcomes vary according to borrower, property and lender circumstances.