The latest ABS Lending Indicators data to June 2026 show that the recovery in housing finance has stalled. Higher interest rates were already increasingly weighing on borrowing capacity, while there is some evidence the changes to negative gearing and capital gains tax policy announced in the Federal Budget in May are now also having an impact on investors.
Total new loan commitments reached 134,872 in the June quarter, 0.4% lower than a year earlier. This represents a sharp change from the 8% year-on-year growth recorded in the March quarter and suggests the three interest rate rises through February, March and May are beginning to have a more visible impact on purchaser activity.
Total loans approved ended the 2025/26 financial year at 555,988 loans, which was up 6.7% on the year prior. However, the negative change in the June quarter reinforces the view that the cycle is now starting to turn.
Owner Occupier Activity Has Weakened
Owner-occupier demand was softer in the June quarter. First Home Buyer loans were effectively unchanged from a year earlier at 30,129, while Next Time Buyer loans fell 3.4% to 50,697.
First Home Buyers have proved relatively resilient despite higher interest rates and affordability pressures, with first home buyer lending in FY2025/26 still 3.3% higher than a year ago. Government assistance and underlying demographic demand appear to be providing some support, although further increases in borrowing costs would make it increasingly difficult for this segment to maintain momentum.
Next Time Buyers seem to be showing greater sensitivity to the current environment, down by 3% in year-on-year terms, although total loans in 2025/26 were 1.0% above a year earlier. This cohort is more discretionary than First Home Buyers and the weakening suggests higher mortgage costs, elevated dwelling prices and transaction costs are increasingly causing households to defer upgrade decisions. This also matters for overall market liquidity, as fewer changeover transactions reduce the chain of purchases through the established housing market.
Investor Momentum Has Slowed Sharply
Investors were the strongest purchaser segment in the June quarter, but the data points to a marked loss of momentum. Investor loan commitments totaled 54,046, only 2.5% above the June quarter 2025, compared with growth of around 19% in the March quarter. In seasonally adjusted terms, the number of investor loans fell by 8% in the quarter.
Investor lending in June quarter also remained high in a long term context, contributing to the 228,200 investor loans approved in 2025/26, 14.5% higher than a year earlier, and 41.0% of all new housing loans. While investor loans are expected to continue to slow into 2026/27, they are coming off near decade highs and may stay elevated in a long term sense depending on the level of retraction.
There is also an interesting shift within investor lending. Even without the negative gearing incentive being quarantined to new dwellings, investor loans for construction and new dwellings have trended upwards in the past five years. The more pronounced uptick in the June quarter—investor loans for construction were around 20% higher than a year earlier and loans for newly built dwellings rose 27%—may have been a result of some substitution to new dwellings, although further data will be required to see if this is a trend. Nevertheless, while investor demand for new housing remains much smaller than established housing, the relative strength in new housing finance is a positive signal for future rental supply.
State and Territory Trends
The slowdown in finance is now evident across most of the larger states, although the composition of demand varies considerably.
New South Wales recorded a 1.5% year-on-year decline in total lending in the June quarter. First Home Buyer activity remained slightly positive, but investor lending fell 3.3%, a notable turnaround after investors had driven much of the state’s earlier recovery.
Victoria was more resilient, with total lending broadly unchanged from a year earlier. Investor loans increased 7.1%, while both First Home Buyer and Next Time Buyer lending declined. This suggests relative value may still be attracting investors even as higher rates weigh on owner occupiers.
Queensland and Western Australia both recorded declines in total lending, of 1.9% and 3.0% respectively. Next Time Buyer activity was particularly weak, falling 4.6% in Queensland and 8.0% in Western Australia. After several years of strong price growth, affordability constraints appear to be increasingly binding in both markets.
South Australia recorded modest overall growth, supported by a strong rise in First Home Buyer lending, while Tasmania and the ACT posted stronger increases from smaller bases. Tasmania’s result was again heavily influenced by investors. These smaller markets can be volatile from quarter to quarter, but the data points to somewhat firmer demand than across the larger mainland states.
Implications
The June finance data provides a clear signal that the emerging recovery phase of 2025 has now stalled and is entering into a slower and more uneven period. Housing finance is closely linked to transaction activity and purchasing capacity, and the slowing in activity indicates that this will detract from dwelling prices.
Next Time Buyers are pulling back, First Home Buyer activity is proving a little more resilient, while the sharp slowdown in investor growth indicates higher interest costs are now affecting the purchaser group that had more recently been driving the market most strongly.
New South Wales, Queensland and Western Australia appear more exposed to further slowing given the weakening in June-quarter finance and the affordability pressures accumulated through recent price growth. Victoria may prove relatively more resilient given continued investor growth and its comparatively softer price performance over recent years, although owner-occupier demand is also weakening.
Rental conditions are likely to remain comparatively firm and is likely to tighten as investor demand for established dwellings continues to soften. The rise in investor finance for construction and new dwellings is encouraging for future supply, but these loans remain a relatively small part of the overall market and higher financing and construction costs will continue to constrain development feasibility.
With monetary policy remaining restrictive and the possibility of further tightening not completely removed, the downward trend in buyer activity is likely to continue until households become more confident that interest rates have peaked and borrowing capacity has stabilised.
For further insight into housing market activity and what it means for your business, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]
