Budget could reshape investor market, brokers warn

The latest Australian Bureau of Statistics Lending Indicators showed the volume of investor lending fell by 5.3 per cent in the March quarter, while the value of investor loans declined 3 per cent.

Investor lending weakness was most pronounced in NSW, which held the largest share of investor lending nationally at 43.9 per cent in March, followed by Western Australia. Investor lending volumes increased in both South Australia and Tasmania, with Tasmania recording an almost 74 per cent annual increase, although from a relatively small base.

Despite the slowdown, investors continued to account for a growing share of the market, representing a record 41 per cent of all housing loan commitments by volume in March. In value terms, investor lending made up 40.3 per cent of the market, the highest level since December 2016.

The broader housing market also softened over the quarter, with the total number of housing loan commitments falling 6.2 per cent and the overall value of lending declining 3.8 per cent compared with the December quarter, although both measures remained above March 2025 levels.

The fall in owner-occupier activity was even more pronounced, with the volume of lending falling 6.9 per cent over the quarter and total value falling 4.3 per cent.

Gerard Burg attributed the softer results to higher interest rates, worsening affordability, and weaker consumer confidence weighing on housing demand.

“Demand is likely to soften further, as the full impact of the interest rate tightening (particularly the hike in May) has not yet been felt,” he said.

The changing face of property investment

What is yet to be reflected in the data is the impact of the proposed federal budget changes, although Burg said the reforms were likely to place further pressure on investor demand.

“Policy changes in this year’s Federal Budget are likely to have a negative impact on investor demand, and by extension, new investor loans,” he said.

Finni brokers Eva Loisance and Costa Arvanitopoulos said clients were already beginning to feel the effects of a shifting investor landscape.

“Every broker should really be checking their clients’ pre-approvals right now. A lot of them are worth nothing now,” Arvanitopoulos said.

“I actually submitted a pre-approval for $1.7 million last Thursday thinking everything was fine, but once Macquarie factored in no negative gearing, it came back closer to $1.26 million. That’s a huge difference.”

Loisance added: “People are focused on the tax benefits, but I don’t think enough thought has gone into the fact that some investors simply won’t be able to buy property anymore.

“I think the people most affected are probably going to be mum-and-dad investors trying to get ahead with one or two properties. A lot of those investors genuinely rely on negative gearing support to help hold a property over the long term.”

Incentive structures shift

Arvanitopoulos also said the changes could drive more borrowers towards non-bank lenders.

“I think the lenders that are going to benefit most from this will be second-tier lenders because they still offer higher borrowing capacities. The rates might be a little higher, but they’re still allowing clients to purchase property,” Arvanitopoulos said.

He added that investment vehicles such as self-managed super funds (SMSFs) could also become more popular as investors look for alternative structures not directly impacted by the proposed reforms.

“I’ve already had a couple of clients start considering SMSFs, so I think that space is going to boom. There are going to be a lot of new investment vehicles and structures being created as people look for ways around these changes,” Arvanitopoulos said.

The budget could reshape not only how investors buy property but also the types of assets they target, Arvanitopoulos noted.

“If investors still want to keep buying residential property, they’ll probably shift towards new builds because that’s where the incentives remain. There’ll still be buyers looking at off-the-plan apartments or brand-new stand-alone homes, even if historically those properties haven’t always grown as quickly,” Arvanitopoulos said.

“Commercial property is completely exempt from these changes, so naturally that’s going to attract more attention as well. The challenge with commercial property is the lower LVRs, you’re talking about 60 to 70 per cent, so investors need a much larger cash contribution upfront.”

Regardless, Burg said the proposed removal of negative gearing on existing properties was likely to continue softening investor demand.

“The removal of negative gearing for purchases of existing properties is likely to reduce investor lending on a net basis; while some new investors may be drawn to purchase newly constructed properties (where negative gearing is retained), they have historically favoured existing dwellings and may now look to other (non-property) assets instead,” Burg said.

[Related: Broker fintechs go viral as they warn of budget impacts on SMEs]

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