Home Loan Applications Fall 16% After Federal Budget Tax Shake-Up

New industry data shows investor mortgage activity has plunged 18% since the federal budget, with mortgage arrears also beginning to creep higher.

New industry data confirms what many borrowers may already be feeling: Australia's home loan market has cooled sharply since the May federal budget. The Adviser reports that mortgage lodgements in August were 16 per cent below the equivalent period a year earlier — a slowdown that began in mid-May and has since spread across most major states.

The sharpest impact has landed on investors, with MPA Australia reporting investor lodgements down 18 per cent year-on-year, while owner-occupier applications fell 14 per cent. New South Wales, Queensland, and South Australia have recorded the steepest declines in new loan applications.

Budget Tax Reforms Are Reshaping Who Is Borrowing

The trigger for the slowdown is largely tax policy. This year's federal budget introduced two significant changes: negative gearing on residential property is now restricted to newly built homes, and the capital gains tax (CGT) discount for investment properties has been replaced with cost-based indexation. Together, these reforms have changed the financial calculus for residential investment — and the data shows investors are responding.

This does not mean investment property is off the table. But it does mean the after-tax return on existing residential investment properties now looks different from what it did before the budget, and many investors are pausing to reassess before committing. Some economists have noted that the reforms could prompt a longer-term reallocation of capital within the property sector, favouring new builds over established homes.

For owner-occupiers, the direct tax impact is minimal. But the flow-on effects — including broader price softness in some markets and changing lender priorities — are worth understanding.

If you are an investor reassessing your position in the wake of the budget changes, our investor home loan hub has a breakdown of lenders with dedicated investor products, including those with policies suited to the new tax environment.

Mortgage Arrears Are Ticking Up — and What That Means for Your Loan

Beyond the lodgement data, another number is worth watching closely: arrears. The Adviser reports that 30-plus-day arrears, including accounts in hardship, have risen to 1.7 per cent of mortgage books — up from 1.6 per cent at June 2025.

In isolation, 1.7 per cent is not a crisis figure. But direction matters. Interest rates have remained elevated by historical standards, and with household cost-of-living pressures still squeezing budgets, some borrowers who stretched to enter the market in recent years are finding repayments harder to manage.

If you have not reviewed your home loan in the past 12 months — or if you are approaching the end of a fixed-rate period — this is a moment worth paying attention to. Lenders have been actively competing for refinancers, and even a modest improvement in your interest rate can free up meaningful cash each month. Use our refinance savings calculator to see what a different rate could mean for your monthly budget.

Strong Settlement Numbers Signal Opportunity for Refinancers

Despite the softer new-application pipeline, settlement figures for the full year to June remain strong. The Adviser reports that residential settlements reached $75 billion across one of Australia's largest broker networks for FY26 — an 18 per cent lift on the prior year. Industry-wide, the broker channel accounted for 81 per cent of all new residential home loans written in FY26, reflecting the growing number of Australians who use a broker to compare lenders rather than going directly to a bank.

That backdrop tells you the fundamental demand for housing finance remains robust — it is the investor component driving the headline slowdown in lodgements. For refinancers and upgraders in particular, the market remains active. Lenders are competing for well-qualified borrowers, and switching between lenders can unlock meaningfully lower rates or better loan features.

If you are considering upgrading your property, start with our borrowing power calculator to understand what you could realistically borrow under current conditions.

Non-Bank Lenders Are Growing Their Share — Here's Why It Matters

Another shift worth watching is the rising profile of non-bank lenders in the Australian mortgage market. MPA Australia reports the non-bank share of total mortgage settlements reached 13 per cent in the most recent full-year period — a meaningful increase in market presence that reflects borrowers' growing appetite for alternatives to the big four.

At the same time, one of the largest wholesale funding channels in the broker market — Advantedge, which previously backed a significant volume of broker-originated home loans — has been progressively winding down new lending. MPA Australia reports that existing customer loan books from this channel are transitioning to NAB-branded products through 2026. The white-label panel that remains active still includes lenders such as Macquarie, Adelaide Bank, and Pepper Money.

Non-bank lenders tend to offer more flexible assessment criteria than the major banks, particularly for borrowers who are self-employed, have variable income, or hold investment properties with more complex structures. If you have been quoted a rate from your existing bank, or if a major bank has declined your application, it is worth asking your broker to canvas non-bank options alongside the household names.

Our home loan comparison page includes both major bank and non-bank products so you can compare what is currently available.

What Should Borrowers Do Right Now?

The mortgage market is in a period of transition — and for different types of borrowers, the right response looks different.

**If you are an existing borrower:** Review your current interest rate. With arrears rising and lenders actively competing for refinancers, there is a real possibility you are paying more than you need to. Run the numbers with our refinance savings calculator to see whether switching makes sense.

**If you are a prospective investor:** Understand the tax changes before you act. The new negative gearing rules and changed CGT treatment mean the after-tax return on an established investment property is materially different from what it was before the budget. Seek advice from a broker experienced with investor loan structures before committing.

**If you are a first home buyer:** The slowdown in investor activity may be creating breathing room in some markets. First home buyer loan options remain competitive, with lenders still actively writing business in this segment.

The broader environment will continue to evolve as interest rate expectations, tax settings, and global conditions play out. For most borrowers, the most valuable step right now is to review what you have — and make sure your loan is still working as hard as it should be.