The Reserve Bank of Australia (Reserve Bank of Australia) has kept the official cash rate at 4.35%, following three rate hikes earlier in 2026.

While inflation has eased from its peak, it remains above the RBA’s 2–3% target range, keeping monetary policy restrictive and leaving the door open to further tightening if price pressures persist.

Recent data shows:

• Headline inflation ~4.0% year-on-year (May 2026)

• Underlying (trimmed mean) inflation ~3.6%

• Inflation has moderated but remains “sticky” in housing, food, and services

Current Monetary Policy Settings 

• Cash rate: 4.35% (held in June 2026)

• Policy stance: Restrictive

• Outlook: Data-dependent, with markets still pricing a possible further hike later in 2026, depending on inflation persistence and labour market strength

The RBA has signalled that inflation progress has improved but is not yet sufficient to justify rate cuts, and further action may still be required if core inflation remains elevated.

What This Means for Borrowers 

1. Borrowing capacity remains constrained

Higher interest rates continue to affect serviceability assessments:

• Borrowers qualify for less

• Lending buffers remain tight

• Refinancing conditions are more restrictive than pre-2024 levels

2. Mortgage repayments remain elevated

• Although rates are no longer rising rapidly, households are still adjusting to the higher rate environment established through 2025–2026.

• For many borrowers, repayments remain significantly higher than pre-tightening levels, particularly for variable loans.

3. Market activity is more segmented 

The property market is no longer moving uniformly:

• Some areas are stabilising or softening

• Others remain resilient due to population growth and supply constraints

• Buyer negotiation power has improved compared to peak demand conditions

First Home Buyers (Low Deposit Risk Profile) 

First home buyers using low-deposit schemes (e.g. 5% deposit structures) remain more exposed to rate pressures:

• High leverage sensitivity → small rate changes materially affect repayments

• Limited equity buffer → slower ability to refinance or absorb valuation fluctuations

• Cash-flow stress risk remains elevated in higher-rate environments

What Happens Next?

The outlook for monetary policy remains uncertain and highly data-driven.

Key factors influencing future RBA decisions include:

• Inflation persistence, particularly in services and housing

• Wage growth and labour market strength

• Global energy price volatility

• Geopolitical risks impacting supply chains and costs

While inflation is trending lower than its 2025 peak, the RBA has made it clear that it is not yet confident inflation is sustainably back within target.

Bottom Line

Inflation has improved but remains above target, and the RBA is maintaining a cautious, restrictive stance.

The peak of the tightening cycle may be near, but the risk of another rate move in 2026 has not fully been removed.

Disclaimer: This article provides general information only and does not constitute financial, taxation or legal advice. The impact of these reforms will depend on individual circumstances. Readers should seek independent professional advice before making property or investment decisions. 

Australia's most significant property tax reforms in more than two decades are now law, introducing major changes to negative gearing, capital gains tax (CGT) and residential property investment.

The reforms are intended to encourage investment in new housing supply, improve housing affordability and increase opportunities for owner-occupiers. At the same time, they are expected to influence property prices, rental markets, borrowing strategies, superannuation investment and residential construction across Australia.

While many existing property owners are protected through grandfathering provisions, the changes will affect future property purchases and are likely to reshape the housing market over the coming years.

Negative Gearing Limited to New Builds 

From 1 July 2027, negative gearing tax benefits for residential investment properties will generally be limited to newly built homes that add to Australia's housing supply.

Under the new legislation:

• Newly built residential properties remain eligible for full negative gearing benefits.

• Investors purchasing established residential properties after 7:30 pm AEST on 12 May 2026 will no longer be able to offset rental losses against salary or other personal income once the new rules commence.

• Instead, rental losses can only be offset against future rental income or future capital gains from residential property.

• Existing investment properties owned before Budget night remain grandfathered under the current rules until sold.

• Contracts exchanged before 7:30 pm AEST on 12 May 2026 remain protected under the existing rules.

The Government says these changes are designed to encourage investment in new housing, increase housing supply and improve affordability over time.

Capital Gains Tax Changes From 1 July 2027 

The legislation also introduces significant changes to Australia's long-standing capital gains tax concessions.

From 1 July 2027:

• The existing 50% CGT discount for individuals, trusts and partnerships will be replaced.

• Capital gains will instead be calculated using inflation-based cost base indexation.

• A minimum 30% tax rate will apply to realised capital gains.

• Eligible investors purchasing new residential builds will be able to choose between the existing CGT discount or the new indexed system, where permitted under the legislation.

• Capital gains accrued before 1 July 2027 remain protected under transitional arrangements.

These changes aim to better align property taxation with long-term investment while maintaining incentives for new housing construction.

Additional Housing Measures

The Budget also confirms several broader housing initiatives, including:

• A $2 billion infrastructure fund supporting approximately 65,000 new homes over the next decade.

• The extension of the temporary ban on foreign buyers purchasing established residential properties until 2029.

• New restrictions preventing self-managed super funds (SMSFs) from using new limited recourse borrowing arrangements (LRBAs) to purchase residential property, while existing arrangements remain grandfathered.

Expected Market Impacts 

The Government expects the reforms to encourage investment in newly constructed housing while reducing investor demand for established homes.

Many economists and industry commentators also expect the reforms to contribute to:

• stronger demand for newly built homes and off-the-plan developments;

• reduced investor competition in the established housing market;

• improved opportunities for first-home buyers;

• changes in property price growth across different market segments;

• tighter rental conditions during the transition period if investor activity slows before additional housing supply becomes available; and

• gradual changes in investment strategies as tax incentives shift towards new housing.

The overall impact will depend on broader economic conditions, interest rates, housing supply and consumer confidence.

What This Means 

Home Buyers

Reduced competition from investors may improve opportunities for owner-occupiers, particularly in the established housing market.

Property Investors

New residential construction is expected to become more attractive from a tax perspective, while investment decisions for established properties may increasingly focus on long-term capital growth and rental returns rather than immediate tax benefits.

Existing Homeowners

Current investment properties remain protected under grandfathering provisions. However, broader market conditions may influence future property values and buyer demand.

Renters

Rental market conditions may tighten in some areas during the transition if investor participation declines before additional housing supply is delivered.

Self-Managed Super Funds (SMSFs)

The new borrowing restrictions reduce future residential property investment options for SMSFs using limited recourse borrowing arrangements, while existing arrangements remain unaffected.

Developers and Builders

Demand for newly built homes, off-the-plan apartments and house-and-land packages may strengthen as investors seek to retain access to available tax concessions.

Borrowers

Lenders may place greater emphasis on rental income, cash flow and long-term investment viability when assessing residential investment loans.

The 2026 Federal Budget marks a decisive shift in Australia’s housing policy. By tightening tax incentives for established investment properties and boosting support for new construction, the government aims to rebalance the market and improve long‑term affordability.

These changes will reshape investor behavior, lending strategies, and property market dynamics for years to come.

Summary 

The 2026–27 Federal Budget introduces one of the most significant changes to Australia's residential property tax system in decades.

By redirecting tax incentives towards new housing construction, the reforms aim to improve housing affordability and increase housing supply over the long term. At the same time, they are expected to influence investment decisions, borrowing strategies, rental markets, property values and residential development across Australia.

Whether you are a homeowner, first-home buyer, investor, renter, business owner or simply monitoring the housing market, understanding these reforms will be important when making future property and financial decisions. As the new rules commence from 1 July 2027, the market is expected to continue adjusting well ahead of their implementation.

Disclaimer: This article provides general information only and does not constitute financial, taxation or legal advice. The impact of these reforms will depend on individual circumstances. Readers should seek independent professional advice before making property or investment decisions.