Negative Gearing Is Gone for Established Properties: What It Does to Your Borrowing Power

Most of the conversation about the 2026 budget's negative gearing changes has focused on property prices. What has received less attention is the immediate, practical impact on how much investors can borrow.

That impact is significant. And for investors who were planning to buy an established investment property, it changes the numbers in ways that need to be understood before any decisions are made.

What Changed and When

From 12 May 2026, Budget night, negative gearing on established residential investment properties purchased after that date is restricted. Rental losses on established properties can only be offset against other property income, not against wages or other income sources.

New builds are entirely exempt. Full negative gearing applies to newly constructed properties and off-the-plan purchases.

The change affects borrowing capacity in a way that is direct and calculable.

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## A Real-World Example

Here is a concrete example of what the change means in practice.

Scenario: A couple with a combined PAYG income of $200,000, renting at $1,000 per week, with a $10,000 credit card limit and no other debts. They are purchasing an investment property with a proposed rental income of $600 per week.

With negative gearing (buying new): Borrowing capacity approximately $750,000.

Without negative gearing (buying established after Budget night): Borrowing capacity approximately $645,000.

The difference is $105,000. On the same income, with the same liabilities, buying the same type of investment property, the only variable is whether negative gearing applies.

That $105,000 gap is not a rounding error or a marginal adjustment. In most Australian capital city markets, $105,000 is the difference between accessing a property and not. It is the difference between a two-bedroom and a one-bedroom apartment in many suburbs. It is the difference between a location with genuine rental demand and one without.

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Why Negative Gearing Affects Borrowing Power

Lenders assess borrowing capacity by looking at income and expenses. When negative gearing applied, a rental property that generated losses could offset those losses against other income, reducing taxable income but also signalling to lenders that the property's cashflow was subsidised by tax benefits.

Without that offset, lenders treat the rental property's cashflow differently. The investment stands more on its own income-generating capacity rather than being partially subsidised through the tax system.

The practical result is that lenders assess the property less favourably when negative gearing does not apply, reducing the total amount they are willing to lend against it.

What This Means for Investors Right Now

Buying established after Budget night costs you borrowing power. The $105,000 gap in the example above is specific to that scenario, but the directional impact applies broadly. Investors buying established properties now are working with meaningfully less borrowing capacity than they were before May 12, 2026.

Buying new preserves your full borrowing power. New builds and off-the-plan purchases are exempt from the changes. Negative gearing applies in full. Lenders assess these purchases under the old rules. The borrowing capacity gap does not exist for new properties.

The gap compounds over time. The $105,000 difference in borrowing capacity means either buying a less expensive property, contributing a larger deposit to compensate, or buying in a less desirable location. Each of those trade-offs has downstream consequences for rental yield, capital growth potential, and the overall investment case.

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The Practical Implication for Off the Plan

The budget changes have created a structural advantage for off-the-plan investment purchases that did not exist before May 2026.

An investor who buys an established property now faces restricted negative gearing and reduced borrowing capacity. An investor who buys off the plan retains full negative gearing, full borrowing capacity, and also benefits from higher depreciation deductions on a newly constructed property.

That is a meaningful combination. It does not mean every off-the-plan investment is the right choice, location, rental demand, build quality, and price relative to comparable stock all still matter. But the tax and borrowing environment now actively favours new construction over established property in a way that has a concrete, calculable impact on returns.

Getting Your Numbers Right Before You Act

The borrowing capacity impact of the negative gearing changes is something every investor should model specifically for their own situation before making any decisions. The example above uses a specific income, liability, and rental income scenario. Your numbers will differ.

A mortgage broker who understands the budget changes and works with investment lending can run these scenarios for your specific circumstances and show you exactly what the difference looks like in your case.

For investors considering off-the-plan to preserve their borrowing power and negative gearing eligibility, browse current investment-suitable developments across NSW, QLD, and WA on the Coposit projects page. Properties can be secured with $10,000 upfront with the remaining deposit spread across interest-free weekly instalments during construction.

Download the Coposit app to explore current listings or contact the team to understand which projects suit your investment goals and borrowing situation.