Jefferies warns that alterations to the tax regime for investor-owned housing signaled in the upcoming Federal Budget could substantially slow growth in investor mortgage activity, with potentially large implications for Australian banks.
Media coverage over the weekend indicated the government intends to change how investor-owned property is taxed, focusing the measures on purchases of established housing while excluding off-the-plan developments from the new regime.
The package under consideration would move away from the current 50% capital gains tax discount, replacing it with an approach akin to the pre-1999 inflation-indexed method. Existing holdings would retain their current tax treatment if they were acquired prior to budget night. Separately, negative gearing would be limited to newly built properties, while holdings currently benefiting from negative gearing would be grandfathered.
Those shifts matter to lenders because investor loans account for roughly 20% of total loans across Australian banks. Jefferies highlighted that about 80% of investor approvals in December 2025 related to purchases of existing dwellings.
The investment mortgage channel is a significant component of mortgage activity more broadly. Jefferies estimates investor mortgage lending represented around 40% of total Australian mortgage flow. The firm cautioned that lowering post-tax returns on purchases of established properties could reduce investor demand for those homes, which in turn would hit investor mortgage volumes.
Jefferies modelled an extreme scenario in which investor approvals for existing housing purchases fell to zero. Under that outcome, the firm's terminal forecast for housing credit growth would fall to about 2%, compared with its current projection of about 4% - effectively halving the terminal housing credit outlook. The research note also stressed a rule of thumb: each 1% reduction in Australian housing credit growth translates into approximately a 1% reduction in sector earnings.
The firm noted there are potential mitigating effects that could emerge over time. Investors might pivot toward newly built properties, which would remain eligible for negative gearing under the proposed rules, or they might lengthen the holding period on existing investments. Either response would act to slow the rate at which loan books run off, partially offsetting weaker new lending to investors.
Exposure across the big banks is uneven. Jefferies identified ANZ and NAB as having the lowest exposure to investor lending among the majors. By contrast, Commonwealth Bank of Australia shows the highest share of investor lending in its new mortgage flows at 43%.
Implications for markets and sectors
- Banking sector - direct exposure to a pullback in investor mortgage demand.
- Housing market - potential cooling of demand for existing homes from investor purchasers.
- Residential construction and new-build segment - possible relative support if investors shift toward new properties.
The scale and timing of any impact will hinge on the final details of the Budget measures and on investor responses, including substitution into new housing or extended holding periods for existing assets.