The latest ABS Lending Indicators data to September 2026 emphasise the combined impact of climbing interest rates on borrowing capacity, and the changes to negative gearing and capital gains tax policy announced in the Federal Budget in May.
Total new loan commitments fell sharply to 109,057 in the September quarter, a substantial 22.4% below the same period a year earlier. The number of loans was on par with September quarter 2019 when activity fell due to the cumulative effects of APRA-tightening and the after-effects of the Banking Royal Commission.
Total loans approved ended the year to September 2026, at 524,541 loans, which was effectively flat (+0.6%) on the prior twelve months, but are obviously now trending sharply downwards.
Owner Occupiers
First Home Buyer loans were down 12.1% nationally in year-on-year terms, while Next Time Buyer loans fell 10.2%.
All states recorded year-on-year declines in First Home Buyer loans of between 6.8% (Western Australia) and 34.6% (Tasmania), except for a 5.7% increase in South Australia. After being relatively resilient in the early stages of the tightening interest rate cycle, lending to First Home Buyers has shifted quickly downward in the September quarter.
Loans to Next Time Buyers were already starting to trend downwards, but this has accelerated. Declines have ranged from –3.5% (Tasmania) to 15.1% (Queensland), with only Northern Territory (+5.9%) recording a year-on-year increase. The weakening suggests falling prices and higher mortgage costs are increasingly causing households to defer upgrade decisions.
Investors
Loans to investors in September quarter 2026 were down by a substantial 38.5% on the same quarter last year; the lowest quarter since March quarter 2023 through the initial post-COVID tightening interest rate phase. While rising interest rates were already dampening investor demand, it was the change in tax policy that accelerated the decline.
The states where investor lending was down the least, Tasmania (–2.1%) and Northern Territory (–24.6%) are also the two jurisdictions with the highest yields and would have been less affected by the changes to negative gearing policy. Declines were also slightly lower in Victoria (–31.2%), likely due to already weakened investor demand and lower base.
New dwelling demand
The September quarter 2026 lending data emphasises how investor behaviour is adjusting to the Federal Government’s housing tax reforms.
Investor lending for established dwellings fell sharply, down 46.2% from a year earlier, compared with a much smaller 10.4% decline for owner-occupiers. Investors have retreated from the market in large numbers.
Similar reductions for investors and owner occupiers occurred in loans for land (–20% vs –21.8% respectively) and for construction of new dwellings (–3.0% vs –4.8%).
By contrast, investor loans for newly constructed dwellings rose 4.2%, while owner-occupier lending for new dwellings declined 11.2%.
This divergence is consistent with the direction of the negative gearing reforms. Established properties acquired after Budget night lost the ability to offset rental losses against wage income from July 2027, while new builds retained full negative gearing treatment. Consequently, investor demand for new builds is moving more in line with the broader market.
This rise in investor loans for newly constructed dwellings suggests that some investors shifted their attention to new builds, but with these buyers representing only 5% of investor demand, it does not appear that the policy shift is translating into a material increase in new supply.
Implications
The September finance data the compounding effect interest rate rises overall, and the changes to negative gearing and capital gains tax policy on investors. Transaction activity will continue to decline, detracting from dwelling prices.
Higher-priced property appears more impacted, due to both greater affordability challenges, their lower yields and more limited negative gearing benefits now detracting investors. There may be support from investors for newly constructed dwellings as a substitute for some investors who would otherwise look at an established dwelling. However, this is not moving the dial materially to increase the level of new supply.
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. Consequently, the weakening demand from both owner occupiers and investors is expected to continue to impact prices into 2027.
Quantify Strategic Insights has forecast a peak-to-trough decline in the median house price of 14% nationally into 2027 (and from –7% to –17% across each of the capital cities) before a modest recovery through to 2031. Details on the national and capital city outlook can be found in Quantify’s Housing Horizons service.
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]
