Property finance experts say market confidence is returning as Budget uncertainty fades

The immediate aftermath of the Federal Budget felt eerily familiar for many working in Australia’s property market.

For Helen Avis, Director of Finance at Specialist Mortgage, the sudden slowdown in buyer activity echoed one of the most extraordinary periods in recent history.

“When the Budget passed the market went dead, with interest in property resembling that same lingering silence that we had for the first two weeks when Covid locked down the world,” she said.

But several months on, finance professionals say the market is beginning to find its footing. While uncertainty surrounding the Federal Government’s housing reforms initially caused many buyers and investors to pause, the consensus among mortgage experts is that the shock has largely been absorbed, with activity returning as borrowers adjust to the new landscape.

As a result, the property market is not booming or crashing but instead entering a period of recalibration.

Ms Avis said buyer enquiries, while still below previous levels, had steadily returned as borrowers gained a clearer understanding of how the new rules applied to their own circumstances.

“As people come to understand the legislation, and how to utilise it to suit their own financial position, it’s starting to get active again,” she said.

“I still have clients buying and the enquiries are trickling in again.”

She believes much of the public commentary predicting a dramatic downturn has overlooked the market’s underlying fundamentals.

“I don’t envisage the forecast market crashes that all these people are predicting in the media,” Ms Avis said.

“There is still a shortage of houses and the demand is out there. We may just see the fizz in the market die down, so it’s no longer such a hot market.”

That assessment is broadly consistent with the latest market observations from Australian Finance Group (AFG), which reported borrower activity softened after the Budget as many households took time out to assess the policy changes alongside recent interest rate increases.

AFG described the slowdown as a period of market readjustment rather than evidence of a lasting decline in underlying demand. While investor activity eased during June, borrower demand generally remained resilient as the market absorbed the new policy settings.

David Bailey, Chief Executive Officer, AFG, said that after a strong start in April and May 2026, June moderated as borrowers took time to assess the Federal Budget changes and the cumulative impact of recent RBA cash rate increases.

“We believe the fiscal policy changes announced during the quarter will represent a period of readjustment rather than a structural shift in underlying demand.

“We have seen patchy investor volumes as the market absorbs the new settings, and the data is consistent with some borrowers pausing or reassessing plans.

“We view this as transitional, and broker demand has remained resilient. Western Australia’s continued strength, driven by its resource-sector economy and supply-constrained housing market, reinforced its position as a standout contributor to national volumes.”

The gradual improvement in confidence contrasts with some of the broader economic forecasts.

Moody’s Ratings recently warned that the Budget’s tax reforms, combined with higher interest rates, would likely reduce investor demand for established housing, slowing residential transaction volumes and moderating house price growth over the next 12 to 18 months.

The ratings agency expects weaker housing turnover to weigh on residential developers, banks and even state government stamp duty revenue, highlighting that the full economic impacts of the reforms will continue unfolding over the coming year.

Implications for first home buyers

Rather than abandoning property altogether, however, many investors appear to be changing how they invest.

Alex Veljancevski, mortgage broker and founder of Eventus Financial, said many investors had simply adjusted their purchasing strategies rather than leaving the market.

“Most people assume investors will simply exit the real estate market if negative gearing becomes less attractive,” he said.

“In reality, many won’t stop investing. We’ve already started seeing investors simply lower their budgets.”

He said lenders had already begun altering the way they assessed negative gearing benefits in borrowing capacity calculations for established properties, reducing how much some investors could borrow.

“For some investors, borrowing capacity has fallen by around 20 per cent. That doesn’t necessarily mean they stop investing, it means they adjust where they buy.”

That shift could have significant implications for first home buyers.

Rather than competing for higher-priced homes, Mr Veljancevski said many investors who previously targeted properties worth $1.2 million or more were now considering more affordable housing, increasing competition in the same segments of the market where many first home buyers are already active.

He said lower-priced properties had increasingly become a target because they generally required less debt, generated lower holding costs and could produce stronger rental yields.

“When borrowing capacity is tighter, lower purchase prices combined with stronger rental returns become much more attractive because they’re less reliant on negative gearing,” he said.

“Ironically, policies designed to reduce the appeal of negative gearing may actually be increasing the attractiveness of lower-priced investment properties.”

Recent Cotality research supports that shift in investor thinking.

Gross rental yields across the combined capital cities reached 3.5 per cent in June 2026, with units returning around 4.5 per cent compared with 3.2 per cent for houses. Yet with investor mortgage rates averaging about 6.4 per cent, most residential investments remain negatively geared, making cash flow an increasingly important consideration when selecting property.

Mr Veljancevski believes this means investors are becoming more selective rather than less active.

“In today’s interest rate environment, investors are looking much more closely at cash flow than they were a few years ago,” he said.

The evolving investor behaviour also reflects a broader adjustment occurring throughout the property market.

According to AFG, the national average loan size reached a record high of $727,345, up 7.2 per cent on the prior year, with the national LVR falling to 63 per cent, the lowest level recorded in AFG’s data. Borrowers continued to strongly favour variable-rate products, which rose to 87.5 per cent of lodgements; fixed-rate retreated to 3.8 per cent following Q3’s spike to 5.4 per cent.

A downturn unlike others

Moody’s Ratings expects reduced investor lending to slow banks’ housing credit growth while increasing delinquency risks across residential mortgage-backed securities. At the same time, developers face ongoing pressure from elevated construction costs, inflation and slower sales activity, suggesting the market is likely to remain subdued even as confidence gradually improves.

Despite those headwinds, finance professionals say the current market differs significantly from previous downturns because housing supply remains constrained.

Limited listings continue to support property values across many markets, even as buyers become more price conscious and take longer to commit.

That combination has produced a market where sellers need realistic expectations, buyers have greater negotiating power than they enjoyed during the post-pandemic boom, and investors are placing greater emphasis on cash flow and asset selection than tax benefits alone.

For borrowers, the initial uncertainty surrounding the Budget reforms appears to have given way to a more measured assessment of opportunities.

Rather than asking whether they should participate in the property market at all, many are now asking how to navigate the new rules most effectively.