The federal budget's overhaul of negative gearing is set to do more than reshape investor tax returns — it could reduce how much property investors can borrow, according to a Sydney mortgage broker who has crunched the numbers.
Alex Veljancevski (pictured), founder of Eventus Financial, says the impact is more immediate than most investors realise.
Under current lending rules, banks factor projected negative gearing tax benefits into serviceability calculations upfront, effectively boosting borrowing capacity before a single tax return is lodged. Importantly, investors who purchase established properties after budget night on 12 May are already subject to the new rules — with the changes taking formal effect for tax purposes from 1 July 2027.
That view is consistent with a RedZed survey of almost 200 mortgage brokers published this week, which found borrowing capacity was the top concern among small business and investor clients following the budget, with 85% of brokers expecting it to impact property prices.
"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,” 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."
To illustrate the scale of the change, Veljancevski modelled a straightforward scenario: a single applicant on $100,000 gross annual income, living at home, with no existing debt.
Under current settings, that borrower can access approximately $750,000 for an investment loan with negative gearing factored in. Strip out those benefits and the same borrower — same income, same expenses, same interest rates — can access only around $600,000.
"That is a $150,000 reduction, or a 20% drop in borrowing capacity, despite no change to income, expenses or interest rates," he said. "A 20% 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."
The timing compounds an already difficult environment. Borrowing capacity has been eroded steadily by successive rate rises, with Veljancevski noting that each 0.50 percentage point increase reduces capacity by approximately 5%.
"Investors are potentially facing a double hit: higher assessment rates from lenders and reduced servicing benefits from negative gearing changes," he said.
The government argues the reforms will support around 75,000 additional homeowners over the next decade and slow house price growth by roughly 2% over several years. Budget papers estimate rents would rise by less than $2 per week as a result.
New construction is the government's proposed solution, but Veljancevski cautions the supply response will be gradual — and renters are unlikely to be shielded from any gap in the interim.
That concern appears well-founded. A Money.com.au survey of property investors conducted ahead of the budget found 61% signalled they would scale back or sell if the proposed CGT and negative gearing reforms proceeded — with South Australia and Queensland investors showing the highest sensitivity to CGT changes, and Western Australia investors most reactive to negative gearing caps.
For Veljancevski, the combined picture — reduced borrowing capacity and wavering investor confidence — points to one clear message for brokers: "The main thing investors should understand is that this isn't just about future tax returns. 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."
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