The future of investors remains uncertain, but Westpac is positioning itself to make entering the market more accessible.
The major has updated two investment lending policies: lowering the minimum deposit required for some borrowers, and extending the maximum interest-only term available on eligible loans.
But Westpac may not be the only bank looking to recalibrate its investor offering as competition for a smaller pool of borrowers intensifies.
In fact, Hobart-based economist Saul Eslake said "it might be a permanent feature.
"Lenders will be taking a different view on lending to people," Eslake told Australian Broker. "The banks will adjust and they'll compete with each other because the demand from investors will fall. And since this is an important part of how banks generate their income, their revenue, they will be looking for other ways to attract business. But it might take some time to sort out."
Following the release of the 2026 to 2027 federal budget in May, the market has been closely watching how investors respond to a wave of policy changes reshaping Australia's property landscape. The reforms, which were aimed at reshaping Australia's housing landscape by potentially adding more supply, have left many reassessing the economics of property investment.
The new budget meant that, starting in July, the federal government limited negative gearing to newly built homes, removing the tax benefits previously available for established properties. It also eliminated the blanket 50% capital gains tax (CGT) discount, marking one of the most significant shifts to investment tax settings in decades.
Around the same time, the Australian Taxation Office (ATO) tightened its compliance requirements for holiday homeowners. Investors seeking to claim deductions for expenses such as mortgage interest, council rates and insurance on a second property must now demonstrate that the home is genuinely being operated as an income-producing rental, rather than simply being available to rent out at random, in order to qualify for tax benefits.
It didn't take long for the market to predict a slowdown in investor activity.
Westpac forecast investor activity would fall by as much as 34%. At the same time, Australian Finance Group (AFG) reported mortgage lodgements declined during the June quarter, while brokers across the country said investor inquiries softened throughout May and into early June.
But the slowdown has not necessarily signalled an investor exodus. Instead, many industry players say it marks a reshaping of the investment landscape.
Nerida Conisbee, chief economist at Ray White, agreed that the changes in investor behavior will likely be "longer term."
"Investors won't disappear," she said. "In Australia, the tax settings have been such that people were quite prepared to buy an investment property with a very low rental yield. And so people bought with a low rental yield. They were able to do so because the cash flow came through negative gearing and they were able to get that annual tax advantage, which made those lower rental yields palatable. And people tended to buy for capital growth. But that's not happening anytime soon. That capital growth will probably be a little bit weaker. So I think what will happen to investors, they can still go into brand new properties and take advantage of negative gearing for that.
"Other investors who are looking at established property will look more closely at what the rental yield is being achieved for that property," Conisbee continued. "So the days of someone buying an investment property with a sort of 2% yield are probably less likely, because they're not going to be able to take advantage of negative gearing. And there are quite strong rental increases occurring with fewer investors in the market. It means fewer rental properties. So rental increases will continue and at some point yields will get to a level that makes buying established property more attractive. That's probably the mechanism that will happen over the next couple of years."
Meanwhile, brokers have reported a changing investor landscape.
"Investors are redirecting where they're putting their money," said Joey Delis, an Adelaide-based broker at Loan Market. "I think the main thing we're seeing is that investor applications have dropped off and there are more of them probably talking about buying newly-built homes. But they don't really want to.
"Just a lot of investors are pausing at the moment more than anything," he continued. "Everyone's just in a wait-and-see phase before anybody changes strategies or makes some decisions. Every bank I'm speaking to is quiet. Everyone's very quiet and that's because investors have just pulled out. They're not really doing anything at the moment. I think everyone was still busy last month because they were settling deals prior to the budget. But now the phones have just sort of stopped ringing the last few weeks and everyone's about to be a little bit quieter. There seems to be a big pause. Nobody knows which way to go yet. It's too soon to change strategy."
Others say investors are redirecting capital into commercial property, where the latest residential tax changes do not apply. Others say interest in commercial self-managed super funds (SMSFs) has accelerated as investors look for alternative ways to build wealth. Still others argue the weakness in residential property is temporary, with activity expected to recover as the market adjusts to the new policy settings.
As for Westpac, under the changes, the bank has cut the required deposit amount in half for investment property loans when borrowers pay with lenders mortgage insurance (LMI): from a 10% deposit to a 5% deposit.
In addition, the loan-to-value ratio (LVR) can be as high as 95% for both new and existing investment property loans, provided repayments are made on a principal-and-interest basis.
The bank also increased the maximum interest-only terms on eligible investment property loans to 15 years, up from 10 years. The interest-free loan periods are available on new and existing investment property loans with LVRs of up to 80%.
Westpac did not respond to requests for additional comment.
