If you’ve sat down with a borrowing calculator lately and come away feeling like something’s off – or found yourself googling “why has my borrowing capacity reduced” – you’re not imagining it. Whether you’re trying to buy your first home, upgrade to something bigger, grow a property portfolio, or simply refinance to a better rate, 2026 has thrown a lot of curveballs at Australian borrowers.
The good news? Understanding why your borrowing power looks different is the first step to doing something about it. Let’s break down what’s actually going on, and more importantly, what you can do.
What’s Changed? The Big Picture
A few things have converged at once, and together they’ve put real pressure on what lenders will approve.
Interest rates are rising again. After three cuts in 2025 that gave many borrowers hope, the RBA reversed course in early 2026. The cash rate hit 3.85% in February – the first hike in over two years – and has continued climbing. By May 2026, it reached 4.35%, with some economists forecasting further moves later in the year. Every time the rate rises, your assessed borrowing capacity drops. A single 0.25% increase can reduce what you can borrow by around 2-3%.
The serviceability buffer is still 3%. APRA’s rule requiring lenders to stress-test you at 3 percentage points above your actual loan rate hasn’t budged. With variable rates now commonly sitting above 6%, banks are effectively assessing whether you could handle repayments at 9%+. That’s a tough hurdle, and it quietly shrinks what looks “affordable” on paper.
The 2026 Federal Budget changed the investment landscape. The Budget announced on 12 May 2026 introduced major changes to negative gearing – limiting it to new builds from 1 July 2027. The ripple effect into lending has been immediate and significant, especially for investors.
Add it all together, and affordability – measured as the share of average after-tax income needed to service a typical new loan – has risen from 28.6% in December 2025 to 29.6% as of March 2026, and it’s expected to climb further through the year.
If You’re a First Home Buyer
You’ve probably felt this the most acutely. You save hard, get close to your deposit target, and then a rate rise quietly moves the goalposts.
Here’s the reality: each rate increase reassesses what you can borrow, which means pre-approvals issued even a few months ago may no longer reflect what a lender will actually give you today. Many buyers have found themselves reassessed down – not because their income changed, but because the test changed.
That said, there are genuine tailwinds for first home buyers right now. Government schemes have been expanded, including the 5% Deposit Scheme (now more accessible), and the Help to Buy shared equity scheme is now operational. ABS data from December 2025 showed first home buyer loans rose 6.8% in that quarter – the strongest result since late 2023 – with the average first home buyer loan in NSW reaching $607,624.
What you can do:
- Get a current borrowing assessment – not a calculator estimate, a real one from a broker like Ingram Financial who knows how each lender applies their policies.
- Make sure you know which government schemes you qualify for. Eligibility criteria, price caps, and availability shift regularly.
- Don’t assume a higher deposit automatically unlocks significantly more borrowing power; your income and expense profile matters just as much.
- Be open to different property types or locations – flexibility on what you buy can often be the difference between getting in now or waiting another year.
If You’re an Upgrader
Upgrading is one of those situations where borrowing capacity gets squeezed from both ends. You need to borrow more, but the rates you’re being assessed against are higher than when you bought your first place. On top of that, your existing mortgage now has to be factored into the equation.
The timing of selling versus buying is genuinely tricky right now. Get the sequencing wrong and you could find yourself bridging at high short-term rates, or losing a property because your finance wasn’t locked in tightly enough.
There’s also the question of what your equity is actually worth in a lender’s eyes. As property values have risen in many pockets of Sydney, equity looks healthy on paper – but lenders are applying more conservative valuations and tighter LVR expectations for larger loans.
What you can do:
- Model out the numbers before you list. Find out exactly what you can borrow before you commit to anything.
- Consider whether a simultaneous settlement or a bridging structure suits your situation – both have trade-offs and neither is automatically right.
- Get your broker to walk you through how your current loan affects a new application. Strategies like paying down debt or restructuring liabilities ahead of applying can make a real difference.
- Don’t leave your current loan on autopilot. If you haven’t reviewed your rate recently, the gap between what you’re paying and what’s available can be significant.
If You’re an Investor
This is where 2026 has delivered the most complexity, and the most risk if you’re not across what’s changed.
The Budget’s negative gearing reforms are the headline. From 1 July 2027, negative gearing will be limited to new builds for any property purchased after Budget night (12 May 2026). Existing holdings are grandfathered – if you already own the property, nothing changes. But for new purchases of established properties, the rules are different.
The direct impact on borrowing capacity has been significant. Lenders have historically included the expected negative gearing tax benefit as a form of income in their serviceability calculations. Remove that, and – for some borrowers – borrowing capacity could fall by 20% or more. Industry modelling has suggested that for a borrower on $100,000 income, capacity could drop by around $150,000 in a worst-case scenario. That’s not trivial.
There’s also a new APRA rule capping high debt-to-income loans (DTI of six or above) at 20% of new residential lending. For investors carrying existing debt across multiple properties, this cap is real.
Capital Gains Tax discount changes are also proposed – replacing the 50% discount for assets held longer than 12 months with a new system that indexes the cost base each year and has a minimum 30% tax on net capital gains – though these are still subject to Senate debate and have not yet been legislated.
What you can do:
- If you’re considering buying an established investment property, understand that the tax and serviceability landscape has fundamentally changed. Run the numbers with your accountant and your broker together.
- New builds now carry a genuine tax advantage over established properties for investors. If your strategy allows flexibility on what you buy, this is worth factoring in.
- Review your existing portfolio structure. Cross-collateralisation, LVR positions, and how each property sits within your overall borrowing profile all matter more now.
- Don’t assume your current approval (if conditional) will hold. Lenders are reassessing in-flight applications in line with new policies.
If You’re Refinancing
If you’re on a variable rate above 6% – and many borrowers are – you may be paying well above what’s available in the market right now. Refinancing activity has surged in 2026 for exactly this reason, with the value of refinancing submissions through major broking groups up nearly 19% year-on-year in the March quarter.
But refinancing in 2026 isn’t as simple as it sounds. Most lenders are assessing your new application against current rates and the 3% buffer. If your income or financial position has changed since you last refinanced, or if property values in your area have shifted, you might find you don’t pass the stress test for a new loan – even though you’ve been comfortably making repayments on your existing one.
Equity access (cash-out refinancing) is also tighter now. Many lenders are capping cash-out at 80% LVR and requiring detailed documentation on how you intend to use the funds.
That said, refinancing when you genuinely qualify can have a meaningful impact. At current rates, rolling high-interest debt into a home loan rate below 6% can significantly improve monthly cash flow.
What you can do:
- Most lenders reserve their sharpest rates for new customers, not loyal ones. The rates on offer for new customers are often sharper than what existing borrowers receive.
- Get a broker to run your numbers across multiple lenders. Each lender applies their own policies. The difference in what they’ll approve – on identical income and loan size – can be substantial.
- Lenders now verify income and expenses more thoroughly than ever – get your paperwork in order. Living expenses, buy now pay later accounts, and credit card limits all factor in.
- If you’re on a fixed rate coming to an end, plan ahead. If your fixed rate was in the 2–3% range, the jump to current variable rates will be significant. Fixed rates are higher than most people would like right now. But locking in could still offer meaningful protection if rates keep climbing.
The Bottom Line
Borrowing capacity in 2026 isn’t broken – it’s just operating under a different set of rules than most people are used to. Higher rates, tighter buffers, and policy changes around investment lending have all converged at once, which is why so many borrowers are finding the numbers aren’t adding up the way they expected.
The single most useful thing you can do right now is get a proper, current assessment from someone who knows how each lender thinks. What one lender declines, another might approve. What looks marginal on your own could be structured differently with the right approach.
That’s exactly what we do at Ingram Financial. If you’d like to talk through your situation – whether you’re buying, upgrading, investing, or just trying to get a better deal on your current loan – get in touch and let’s work through it together.
This article is general in nature and does not constitute financial advice. Please seek professional advice appropriate to your personal circumstances before making any financial decisions.
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