It has been a big few weeks in Australian finance. The Reserve Bank of Australia (RBA) has delivered its third consecutive rate rise in 2026, and the Federal Budget has proposed significant changes to negative gearing that will affect property investors across the country. If you have a mortgage, are thinking about buying, or own an investment property, here is what you need to know.
The RBA’s Third Rate Hike This Year
On 5 May 2026, the RBA raised the official cash rate by 0.25% to 4.35% — the third increase in a row this year. If you are on a variable rate home loan, your repayments are about to increase, with most major lenders passing on the full rise effective around 22 May 2026.
To put the cumulative impact in perspective: three consecutive 0.25% increases add up to a 0.75% rise since the start of 2026. For a $700,000 loan over 30 years, that adds hundreds of dollars to your monthly repayments.
How Much More Will Repayments Cost?
| Loan Size | Approximate Monthly Increase Since Jan 2026 |
|---|---|
| $500,000 | $236/month |
| $700,000 | $331/month |
| $1,000,000 | $473/month |
What does this mean for borrowing capacity?
Each rate rise reduces how much you can borrow. A couple earning $180,000 combined and with no dependents or other liabilities may have been able to borrow around $1,076,000 million at the start of 2026. After three consecutive rate rises, that same borrowing capacity could now be closer to $1,001,000 depending on lender policy and existing debts.
As a rough guide, every 0.25% increase in rates can reduce a borrower’s capacity by approximately $25,000. After three hikes, that is a meaningful reduction for buyers who are stretching to enter the market.
What happens next?
The good news is that the RBA signalled after its May meeting that it now has room to pause and monitor how the economy responds. Most economists expect rates to remain on hold for the remainder of 2026, with potential rate cuts not expected until 2027 – and only if inflation continues to ease back toward the RBA’s 2–3% target. Inflation remains stubbornly high, running at around 4.6% annually as of March 2026, so nothing is guaranteed.
Federal Budget: Negative Gearing Changes You Need to Know About
Alongside the rate rises, the Federal Budget has proposed changes to negative gearing that are to came into effect from 12 May 2026, though legislation is still pending. These are significant for anyone who owns investment property or is considering buying one.
What is changing?
Under the new rules, negative gearing is no longer available on all investment properties. Going forward, negative gearing tax benefits will only apply to new builds that genuinely add to housing supply. Established (existing) investment properties purchased after 12 May 2026 will no longer attract negative gearing deductions.
What does this mean for investors?
If you are buying an investment property, the contract date of 12 May 2026 is now a critical dividing line:
Contracts signed on or before 12 May 2026: You retain full access to negative gearing in your loan serviceability calculations – no change.
Contracts signed after 12 May 2026: Negative gearing will only be factored into serviceability calculations if the property qualifies as a new build that adds to housing supply. For established properties purchased after this date, only deductions against rental income will be allowed.
What about refinancing?
Policies will vary by lender, but as of the date of publication, most lenders seem to be applying the changes consistently with the governments guiance. If you are refinancing an existing investment property:
- A dollar-for-dollar refinance of a property purchased before 12 May 2026 is not affected – negative gearing still applies.
- If you are refinancing with cash out, negative gearing on the additional borrowing only applies if the funds are being used to purchase a pre-12 May property, an eligible new build, or to improve an existing investment property acquired before 12 May.
What if your home is becoming a rental?
If you own a property purchased before 12 May 2026 and it converts from owner-occupied to an investment property in the future, negative gearing on the debt used to acquire or improve that property is preserved.
What Should You Do Right Now?
With rates rising and the tax landscape shifting, now is an excellent time to review your financial position. Here are three things worth considering:
1. Review your current home loan rate. After three consecutive rate rises, many lenders are quietly offering more competitive rates to new customers than existing ones. A quick review could save you thousands.
2. If you are an investor, check your contract dates. The 12 May 2026 cut-off is firm. If you have an investment property under contract or are planning a purchase, it is worth understanding exactly where you stand and how the changes affect your serviceability.
3. Talk to a broker before you act. Whether you are refinancing, buying your first home, or growing a property portfolio, the combination of higher rates and changing tax rules means the numbers look different to even six months ago. Getting personalised advice is more valuable than ever.
Let’s Talk
If you want to know how the latest rate rises affect your borrowing capacity, repayments, or investment strategy, we can run lender-specific calculations based on your situation.
We help clients across the Sutherland Shire and St George (and across Australia) compare lenders, refinance existing loans, and structure investment lending effectively.
Book a free strategy call with Shannon Ingram today.
This article is general in nature and does not constitute financial or tax advice. Please consult a qualified financial adviser and/or tax professional before making any decisions based on this information.
