FY25–26 Property Market Wrap: What Borrowers Should Take Into FY26–27
FY25–26 will be remembered as the year borrowers faced rapid interest rate changes, tighter borrowing conditions, and significant proposed property tax reforms. Australian dwelling values rose 8.6% in 2025, the strongest calendar-year gain since 2021. And then, within months, the financial year ended with three rate hikes and one of the most significant proposed property tax reform discussions in recent decades. Borrowers walking into FY26–27 are not facing the same market they planned around twelve months ago. The Australian property market 2026 has been shaped by interest rate movements, tax reform, and changing lending conditions, making this one of the most important periods for borrowers and investors to reassess their plans.
The Year, In Order
Before looking at what these changes mean for borrowers, it helps to see how the major rate decisions and policy reforms unfolded throughout FY25–26.
What This Did to Borrowing Power
Understanding home loan borrowing capacity 2026 trends is now essential because rate movements have materially changed borrowing outcomes across Australia. Many lenders moved variable mortgage rates higher following the May RBA decision. Combined with February and March, borrowing power in Australia has been reshaped meaningfully across the financial year at the same time as Australia's unemployment rate rose to 4.5% in April, the highest seasonally adjusted reading since November 2021.
Forecasts remain divided. Some economists expect rates to remain steady, while others believe further increases remain possible depending on inflation and broader economic conditions. The forecasting spread itself tells borrowers something important: certainty has not returned.
The Tax Reform Borrowers Need to Understand
Under the proposed Budget 2026 changes, from 1 July 2027, losses related to existing residential investment properties purchased from 7:30 pm AEST on 12 May 2026 would only be deductible against residential property income, including capital gains. Properties held or under contract before 7:30 pm AEST on 12 May 2026 are expected to be grandfathered under the proposed changes. Eligible new builds are expected to remain exempt under the proposed changes. Borrowers should seek professional tax advice before relying on any potential tax outcome when making property decisions.
What this means for FY26–27: any property purchase decision now carries a tax dimension that did not exist a year ago. The timing and structure of a purchase of a new build versus an established one, before or after the Budget night cut-off, materially affect long-term after-tax returns.
Three Things to Take Into FY26–27
- Reassess serviceability now, not at application time: with the cash rate at 4.35%, get a fresh borrowing capacity estimate before assuming last year's pre-approval figure still applies
- Understand the negative gearing cut-off date: if you are weighing established versus new build, the 12 May 2026 grandfathering line is now central to that decision
- Watch the supply side, not just rates: housing supply remains a key pressure point in many markets. Supply constraints may support demand in some locations, but prices can still move depending on interest rates, confidence, lending conditions and local market factors.
- These factors will play a major role in shaping any property investment strategy Australia borrowers consider during FY26–27.
Where KM Financial Service Fits In
Kris Menon and the KM Financial Service team bring 20+ years of mortgage broking experience, with access to more than 50 lenders across Australia. Backed by 400+ 5-Star Google Reviews and 400+ 5-Star RateMyAgent Reviews, KM Financial Service has built a strong reputation for helping borrowers navigate changing market conditions and make informed home loan decisions. Heading into FY26–27, the priority for borrowers is clarity about their borrowing position under the current rate environment and how the negative gearing changes may affect future property decisions.
Book a free consultation at kmfinancialservice.com.au before making any FY26–27 property decisions. Follow KM Financial Service on Instagram, Facebook, and LinkedIn for ongoing market updates.
Frequently Asked Questions
Q: Will the RBA raise the cash rate again in FY26–27?
Answer: Forecasts differ between major banks. Some expect rates to remain steady, while others believe further increases remain possible. Future RBA decisions will depend on inflation, employment and broader economic conditions.
Q: Does the negative gearing change affect properties I already own?
Answer: Under the proposed changes, properties held or under contract before 7:30pm AEST on 12 May 2026 are expected to be grandfathered. Borrowers should seek tax advice regarding their individual circumstances.
Q: Is now still a reasonable time to buy property given the rate hikes?
Answer: Supply constraints may support some markets, but borrowing capacity, repayment affordability and local market conditions should all be reassessed before making a purchase decision.
