Mortgage Demand Contracts 12.5% After Rate Hikes and Tax Reform

Equifax Q2 2026 data shows mortgage applications swung from 3.7% growth in April to a 12.5% contraction in June after rate hikes and negative gearing changes.

New credit trend data from Equifax Australia has put hard numbers on what many borrowers are already feeling: mortgage demand has swung sharply since the Reserve Bank's May 2026 rate rise and the federal government's negative gearing and capital gains tax changes took hold.

Australian Broker reports that Equifax Australia's Q2 2026 analysis shows mortgage applications went from growing at 3.7% year-on-year in March and April — before the reforms landed — to contracting 12.5% year-on-year in May and June once both the rate increase and tax changes were in effect. The RBA lifted the cash rate by 25 basis points to 4.35% at its May meeting, the third increase of 2026.

The budget's tax reforms, now law, restrict negative gearing to newly-built properties and change the capital gains tax treatment for investors. Properties purchased before 7:30pm AEST on 12 May 2026 are grandfathered under the existing negative gearing rules, while the CGT changes apply to gains accrued after 1 July 2027.

Who's Feeling It Most

First home buyer enquiries took the steepest fall of any borrower segment, down 15% year-on-year in the post-reform window. Credit card, personal loan, and auto loan demand also softened, indicating the pull-back reflects broader consumer sentiment rather than a purely housing-specific response.

At the city level, Brisbane, Sydney, and Melbourne all recorded double-digit falls in mortgage enquiry volumes, well above the national trend. At the suburb level, Sydney's Canada Bay saw the steepest drop nationally, while Melbourne's Keilor and Queensland's Maroochy also posted significant declines.

The national average mortgage enquiry amount contracted by $8,000 — or 1.1% — between March and June.

Perth was the notable exception, remaining the only major capital to hold positive momentum through the reform period. Perth and Adelaide currently offer the lowest mortgage value entry points nationally, led by Kwinana and Gawler respectively. Regional and non-capital areas have proved more insulated than major metros — consistent with affordability constraints shaping where buyers can realistically compete.

What the Data Means for You

Equifax Australia chief solutions officer Kevin James put the shift plainly. "The simultaneous arrival of the May rate hike and tax reforms have coincided with a decline in consumer borrowing demand during the second quarter of the year, which is in contrast to the growth and momentum we observed earlier in the year," James said. He also noted that "historical data suggests market participants tend to adjust quickly as new baseline conditions settle" — suggesting the contraction is more a recalibration than a structural collapse.

On hardship, mortgage hardship accounts rose 5.3% over the quarter, with non-mortgage hardship up 5.6%. But Equifax's analysis was deliberate: "The 5.6% rise in non-mortgage hardship accounts likely signals responsible, proactive management," the report noted. Late-stage arrears across key credit types remained broadly stable.

For borrowers sitting on the sidelines, the data points to several practical signals.

First, affordability windows are opening in specific locations. Cotality's national Home Value Index fell 0.7% in July 2026 — the steepest monthly decline since December 2022 — with Sydney down 1.4%, Melbourne down 1.2%, Brisbane down 0.6%, and Adelaide down 0.2%. But Perth, Adelaide, and regional markets are showing relative resilience, with lower average mortgage entry sizes than the eastern capitals. If your property search is flexible on location, checking your borrowing power across a wider range of markets may surface options you haven't yet considered.

Second, reduced demand means less buyer competition. Nationally, auction clearance rates have been running below 50% since late May — significantly down from the mid-to-high 60% range recorded in the same period last year per Cotality data. Qualified buyers with finance approved and a clear brief are competing against fewer others than they have in years.

Third, if you're an existing borrower feeling the weight of three rate rises this year, act early rather than late. The Equifax data confirms that proactive management tends to produce better outcomes than waiting until repayments fall behind. A broker can also help you assess whether refinancing to a more competitive rate would ease your repayments — our refinance savings calculator is a good starting point, and the cheapest home loans currently available page shows what's on the market right now.

Australian Broker also notes that Herron Todd White's July 2026 Month in Review found Brisbane maintaining positive price momentum with annual growth of 17.4% to a median value of $1,118,306 per Cotality figures cited in the report. HTW's national Prestige Property Monitor eased to 58 out of 100 in July — its lowest reading since the index launched in February at 66 — with Sydney at 40 and Melbourne at 35 both in balanced-to-cool territory. That divergence between entry-level and prestige markets is a recurring theme in current data worth tracking if you're a buyer trying to identify where conditions have held up.

Read the full Equifax analysis via Australian Broker's report.