Mortgage Demand Crashed 16 Points: What Borrowers Need Now

New data shows mortgage enquiries swung 16 percentage points into negative territory in Q2 2026, with house prices now forecast to fall 1.1% this year.

Two reports published this week point to the same conclusion: Australia's housing market has entered a period of genuine cooling, and the shift happened fast.

The first is Equifax's Q2 2026 Consumer Credit Analysis, which tracked mortgage enquiry volumes and loan sizes through the quarter. The second is KPMG's Residential Property Market Outlook, which provides price forecasts through 2027. Together they document what happens when two interest rate rises and a major tax reform package arrive almost simultaneously — and what that means for borrowers making decisions in the second half of 2026.

Mortgage Demand Fell Off a Cliff in May and June

According to MPA Australia, which reported the Equifax findings, mortgage demand in Australia split into two dramatically different periods during the second quarter. In March and April — before the rate rise and tax changes to negative gearing and the capital gains tax discount — mortgage enquiry growth was running at 3.7% year-on-year. In May and June, after those changes took effect, that figure swung to -12.5% year-on-year.

That is a shift of 16.2 percentage points in the space of just two months.

First home buyer enquiries fell 15% year-on-year in the post-reform period. The cooling was not confined to housing credit. Credit card demand fell further to -4.8%, personal loan demand swung from growth of 5.5% to a contraction of 0.4%, and auto loan demand deepened its fall to 6.6%.

The national average mortgage enquiry amount fell by $8,000 (1.1%) between March and June 2026. The steepest declines were concentrated in the east coast capitals: Brisbane recorded the largest capital-level fall at $15,000, followed by Sydney at $12,000 and Melbourne at $11,000. At a suburb level, the falls were even more dramatic — Sydney's Canada Bay recorded a $145,262 drop, Melbourne's Keilor fell $101,301, and Maroochy on Queensland's Sunshine Coast saw a $119,016 reduction.

Perth was the only major capital to record positive movement, rising $1,000 (0.2%). Regional and non-capital areas were comparatively resilient, recording an average decline of just $4,000 (0.5%).

Kevin James, chief solutions officer at Equifax Australia, said the combined effect had reshaped borrower behaviour quickly. "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," he said. He also noted that the pullback in enquiry values is not uniformly negative. "While shrinking mortgage enquiry amounts likely reflect a broader market cooling, they also reveal emerging windows of opportunity for prospective buyers," James said.

Perth and Adelaide currently sit at the lower end of the national spectrum for typical mortgage values. Equifax highlighted Kwinana in Perth ($526,000) and Gawler–Two Wells in Adelaide ($565,000) as the most nationally affordable entry points among major market suburbs.

House Prices Are Forecast to Fall Before a 2027 Rebound

KPMG's Residential Property Market Outlook, reported by Australian Broker, provides a forward-looking view consistent with the Equifax demand data. KPMG forecasts national house prices to fall 1.1% through 2026 before rebounding 3.4% in 2027.

The report attributes the current softening to three consecutive cash rate increases, renewed inflation pressure linked to the Iran conflict, and changes to capital gains tax discount and negative gearing treatment announced in the 2026–27 federal budget. KPMG said these factors "resulted in a significantly softer housing market than previously anticipated."

House prices nationally grew 5.5% and units 6.6% in the year to the June quarter — a clear slowdown from the 9.1% annual growth recorded in late 2025. Sydney, Melbourne, and Canberra are expected to record outright falls in 2026. Brisbane, Perth, and Adelaide are forecast to see growth moderate sharply after several years of outsized gains. Darwin is tipped to remain the strongest performer this year. Units are expected to outperform houses nationally, supported by stronger affordability and higher rental yields.

The supply picture remains structurally challenging. KPMG forecasts around 160,000 net new dwellings annually in FY26 and FY27 — well short of the pace needed to reach the National Housing Accord's 1.2 million homes target by mid-2029. That underlying shortfall is expected to reassert itself and drive the recovery from 2027. KPMG cautioned that considerable uncertainty remains, warning that weak sentiment "can often outlast underlying fundamentals," raising the risk of a deeper or more prolonged correction.

The next rate test arrives on 11 August, when the RBA hands down its next cash rate decision. Most major lenders expect a hold; Westpac remains an outlier forecasting a further hike.

What This Means for Buyers and Borrowers

For first home buyers, softening prices in Sydney, Melbourne, and Canberra may open entry opportunities that were difficult to access during the 2025 surge. The 15% drop in first home buyer enquiry volumes suggests competition for stock has genuinely eased in those markets.

For investors, the tax reform changes create a more complex picture. KPMG flags that transaction volumes may shrink as existing investors hold properties to preserve grandfathered tax concessions, which could tighten the supply of established homes even as buyer demand cools.

For borrowers under financial pressure, mortgage hardship accounts rose 5.3% quarter-on-quarter in Q2 2026. Victoria recorded the highest mortgage hardship rate nationally at 0.78%. Equifax interpreted the rise in non-mortgage hardship as evidence that many borrowers are engaging with hardship teams proactively — a pattern that tends to produce better outcomes than waiting until arrears worsen.

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