Investor mortgage applications plunge up to 20% - what it means for first home buyers

Three of the big four banks have reported a sharp fall in investor mortgage applications since May's federal budget, and the drop is big enough to move bank share prices this week. For first home buyers who have spent 2026 competing with investors at open homes and auctions, fewer investor applications in the system could eventually translate into fewer investor bids on the ground, though it is still early days.

The numbers banks are reporting

Westpac says applications for investor home loans fell around 20% in the weeks following the May budget announcement, and now forecasts investor housing credit growth nearly halving, from about 9% this year to roughly 4.5% in 2027. Commonwealth Bank reported home loan applications down 15% since May overall, with investor loan applications down 28% and owner-occupier applications down a smaller 9%. Taken together, CBA, Westpac and ANZ have all reported mortgage application volumes down by at least 12% since the budget, a pullback large enough that bank shares slipped when the figures were released this week.

Why investor demand is falling

The trigger is the negative gearing change announced in the May budget. From 1 July 2027, negative gearing on established residential property will be phased out for properties bought after budget night (12 May 2026, 7:30pm). Investors will no longer be able to offset rental losses on those established properties against salary or other personal income, though losses can still be offset against rental income or future capital gains. Existing investors and anyone who was already under contract before budget night are grandfathered under the old rules, and new-build purchases keep access to both negative gearing and the 50% capital gains tax discount, so the policy is deliberately steering investor demand toward new supply rather than existing homes.

Lenders have been progressively updating how they assess investor borrowing capacity in response. For contracts signed after budget night, several banks now only count the negative gearing benefit in their serviceability tests if the property is a new build. Combined with this year's rate rises, that is estimated to cut borrowing capacity for an investor on a 37% marginal tax rate by roughly 10 to 15%, rising above 20% for higher earners or investors with multiple properties, which helps explain why application volumes have fallen so quickly.

What this means for first home buyers

Fewer investor applications in the pipeline may mean less competition at auctions and private treaty sales over the coming months, particularly in the sub-$700,000 bracket where investor and first home buyer demand has overlapped the most. This is one early signal rather than a confirmed shift though. Auction clearance rates only recently climbed back to an 11-week high of around 55%, still below the roughly 68% decade average, and rates remain elevated, so the market is still tight overall.

• If you are actively house hunting, it may be worth checking whether your current borrowing capacity estimate reflects the latest lender serviceability settings, since these have been changing through 2026.
• New-build homes and off-the-plan purchases may see steadier investor interest than established homes, given they keep full access to negative gearing and the CGT discount.
• Softer investor demand does not remove the need to budget carefully. Stress-testing your repayments against a higher rate is still worthwhile before making an offer.

Run the numbers

These tools can help you translate this week's lending data into your own situation:

• Borrowing Power Calculator - check what you may be able to borrow now that lenders have updated their serviceability assessments this year.
• Interest Rate Shock Tester - see how your repayments would hold up if rates move again while you are house hunting.
• Scheme Comparison Tool - compare government schemes that could give you an edge if competition in your price bracket does start to ease.