May 2026 Property Market Update: What Rising Rates and the Federal Budget Mean for Borrowers
Autumn has brought significant changes for Australian property owners, buyers and investors, with both the Federal Budget and the Reserve Bank of Australia shaping the conversation around housing, lending and the cost of living.
For borrowers navigating a changing market, understanding how these updates may affect your borrowing power, home loan strategy and future property plans is becoming increasingly important.
Whether you’re considering buying, refinancing or investing, staying informed can help you make more confident financial decisions in 2026.
Federal Budget 2026–27: Key Property and Finance Changes
The Federal Budget introduced several major announcements that could impact property owners, investors, first home buyers and self-employed Australians.
Negative Gearing and Capital Gains Tax Changes
From 1 July 2027, changes will apply to new residential investment properties.
Key changes include:
Negative gearing on established properties will no longer be deductible against regular income
New builds will remain exempt
Existing properties owned before 12 May 2026 will be grandfathered
Capital gains tax rules will move to an inflation-adjusted model with a 30% minimum tax rate
These changes are likely to influence investment strategies and may shift investor demand towards new construction and regional markets.
If you own investment property or are considering investing, it may be worth discussing the potential implications with your accountant or financial adviser.
First Home Buyer Support Continues
The Federal Government confirmed the continuation of the 5% Deposit Scheme, helping eligible first home buyers purchase property without paying Lenders Mortgage Insurance (LMI).
Additional housing measures include:
$2 billion allocated to housing infrastructure
Target of 65,000 new homes
Continued restrictions on foreign investors purchasing existing homes
For many first home buyers, understanding available schemes and borrowing options remains an important part of entering the market.
Cost-of-Living Relief Measures
The Budget also introduced several tax and cost-of-living measures, including:
A new $1,000 instant tax deduction for work-related expenses
A Working Australians Tax Offset (WATO) of up to $250 from July 2027
Gradual reductions to personal income tax rates from 2026 onwards
While these measures may provide some relief, rising interest rates and inflation continue to place pressure on household budgets.
Support for Small Business and Self-Employed Borrowers
Several measures were also announced for businesses and self-employed Australians, including:
The $20,000 instant asset write-off becoming permanent
Expanded tax loss carry-back rules for larger businesses
For self-employed borrowers, strong financial structure and planning remain important when preparing for a home loan application.
Interest Rate Update: Cash Rate Now at 4.35%
The RBA increased the cash rate to 4.35% in May, marking the third consecutive rate rise for 2026.
Inflation continues to remain above the RBA’s target range:
CPI rose to 4.6% in March
Underlying inflation held at 3.3%
RBA Governor Michele Bullock linked inflation pressures to rising energy and commodity costs caused by global instability.
Some economists are now forecasting the possibility of further rate rises later in 2026.
What Rising Interest Rates Mean for Borrowers
For many homeowners, rising interest rates are increasing pressure on monthly repayments and household cash flow.
This is leading more borrowers to:
Compare lenders
Explore refinancing opportunities
Reassess loan structure and features
Even small differences in interest rates can significantly affect repayments over time.
Reviewing your home loan regularly may help determine whether your current loan remains competitive and aligned with your goals.
Property Market Update: Growth Continues to Slow
According to Cotality, national home values increased by just 0.3% in April, marking the slowest pace of growth in more than a year.
Sydney and Melbourne experienced monthly declines of 0.6%, while regional markets continued to outperform capital cities overall.
Cotality research director Tim Lawless said affordability pressures, serviceability constraints and rising interest rates are continuing to weigh on demand.
Regional markets remain comparatively resilient, although growth has also started to moderate.
What This Means for Buyers and Refinancers
Changing market conditions are creating both challenges and opportunities.
For buyers:
Slower market conditions may reduce competition in some areas
Pre-approval and preparation remain important in a higher-rate environment
For homeowners:
Reviewing your current interest rate may help identify savings opportunities
Loan structure and features are becoming increasingly important
For investors:
Cash flow and rental yield are becoming a stronger focus as growth moderates
Thinking About Your Next Move?
With interest rates, lending policies and market conditions continuing to evolve, having a clear finance strategy matters more than ever.
Whether you’re:
Buying your first home
Refinancing your mortgage
Reviewing your investment strategy
Planning your next property move
Understanding your options early can help you move forward with greater confidence.
If you’d like to review your home loan or discuss your finance options, feel free to get in touch.