By James Gregors

The 2026 Federal Budget proposed changes to property tax that the Government says will address “intergenerational unfairness”.

This is big news and has generated a lot of discussion about how this could potentially change things for first home buyers.

At The Property Education Company, we work with young buyers every day. Our approach is education first, helping you understand your borrowing potential and how lending works before you submit an application.

Here’s some information about the changes proposed in the Federal Budget, the response from economics and real estate professionals, and our tips for your next steps:

In short:

• The Government has proposed negative gearing would be restricted for investors who buy established properties.
• Proposed changes to the capital gains tax discount may impact investor activity in the future.
• The recommended changes largely impact tax relating to the purchase and ownership of existing homes as investment properties
• Some economists suggest reduced investor demand could improve purchasing conditions for some first home buyers in certain markets

Note:  

At the time of writing this article (May 2026), details remain subject to the legislative process. This outlines the proposed reforms, which may not be the final outcome.

This article is general information only and does not provide tax advice. For the tax treatment of your circumstances, speak with a registered tax agent or accountant.

Budget 2026:

What has actually changed

For decades, Australia’s tax system has made property investment a popular strategy for growing wealth.

Negative gearing allowed investors to run a rental property at a loss and write those losses off against their other income, reducing their tax bill.

The 50% CGT discount meant that when they eventually sold, they only paid tax on half their profit.

Together, these two settings created a powerful incentive to buy investment properties. Investors responded, with the Australian Bureau of Statistics reporting that investment loans reached record highs in late 2025. Other research from 2020 showed that property investors were buying almost twice as many homes as first-home buyers.

With the tax system helping to reduce losses covered by negative gearing, and boosting profits with discounted CGT when properties sell, the concern from policymakers and consumers has been that investors with strong financial backgrounds have had an edge over first-time buyers.

These are the proposed updates from the Federal Budget that may change that:

1. Negative gearing would be restricted for new investor purchases

The Government says that around 1 per cent of people who file tax returns reportedly acquire negatively geared properties each year. In 2022–23, this was around 230,000 individuals.

Proposed changes (from 1 July 2027):

1. Borrowers Negative gearing for residential property will be limited to new builds only
2. For new properties purchased after announcement (7:30pm AEST 12 May 2026), rental losses can only be deducted against other residential property income, not salary/wages
3. Excess losses can be carried forward to offset future residential property income
   

The Government put forward that properties held before the announcement can continue to be negatively geared indefinitely until sold, and that eligible new builds would retain full negative gearing (losses can still offset salary/wages).

For established properties purchased before the announcement, negative gearing would continue as normal. And properties purchased between the Government’s budget announcement and 30 June 2027: can negatively gear during that period only, not from 1 July 2027, while properties purchased from 1 July 2027: cannot be negatively geared.

2. The capital gains tax discount would also change

Under the proposals by the Government, the flat 50% CGT discount, which has been in place since 1999, would be replaced with an inflation-adjusted model.
Rather than automatically paying tax on only half their profit, investors would be taxed on the real gain above inflation when they sell. The Government will also introduce a 30 per cent minimum tax on capital gains. 

Take a look at a full explainer document about Federal Budget property tax changes here.

3. New builds are treated differently

New residential properties acquired after budget night are proposed to be exempt from the CGT changes and to retain the existing negative gearing treatment.

This includes:

• dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings.
  
• Expenses and living costs

Ready to understand what the 2026 Federal Budget means for your home buying journey?

We’ll help you map your preparation strategy and understand your borrowing options. Book a first home buyer strategy call here.

Expert responses to the budget

The Government has said its changes “will help level the playing field for first home buyers, preserve the gains investors have made, and support investment in new housing supply.”

Here are some of the reported responses to the 2026 Budget from economists and real estate agents:

UNSW Professor of Economics Richard Holden said: “The changes to negative gearing will help level the playing field between owner occupiers and investors.”

Cotality Research Director Tim Lawless backed this up, predicting “less competition in that segment of the marketplace for first home buyers” around the median price point where investors and first home buyers find themselves in competition with each other.

Dr. Nick Garvin from the e61 Institute responded to the budget, saying: “If there’s a first home buyer out there whose ability to pay was just below the investor, then changing those tax settings can push down an investor’s willingness to pay enough that the first home buyer can get in and be the winning bidder.”

Canstar financial commentator Sally Tindall shared the reminder that “this is a big reform that will take a while to have an impact on the property market.”

Action steps for first home buyers

The budget changes are yet to be confirmed, as are the outcomes of the proposed updates.

If you are thinking of purchasing your first home, these are some steps to follow regardless of what happens with policy and regulations:

1. Start getting your finances in order. Buying a home means you need to be loan ready, which means being able to prove to lenders you have a stable income, consistent savings and minimal debt/credit cards.
2. Understand your true borrowing capacity. Online calculators give you a rough figure, but lenders assess your application against a far more detailed set of criteria as your spending habits, credit limits, employment history and existing debts all factor in. A mortgage broker can help you better understand how lenders may assess your situation and which grants and exemptions you may be eligible for, and help you understand what to work on before you apply.
3. Reduce any credit that might be working against you. Credit cards, Buy Now Pay Later accounts and unused credit limits all reduce your borrowing capacity, even if the balances are zero. In the lead-up to applying for a home loan, reducing or closing these accounts can make a meaningful difference to how much a lender will offer you.
4. Build a consistent savings history. Lenders want to see that you can save regularly, not just that you have a lump sum sitting in an account. Even if part of your deposit comes from a gift or family support, having a track record of setting aside money each month is a strong positive signal. Aim for at least three to six months of consistent saving before you apply.
5. Work with a mortgage broker before you start house hunting. A broker can help you understand your real borrowing position, identify lenders whose policies may better align with your circumstances, and flag any issues before they become problems.
6. Keep an eye on the market. Property markets are local and complex — what happens in one suburb won’t necessarily happen in another. Your broker can help you understand what’s happening in the areas you’re looking at, and whether the numbers actually work for your situation.

What a mortgage broker actually does for first home buyers

A lot of first home buyers assume a mortgage broker just finds them a loan. In reality, a broker can do much more than that.

At The Property Education Company, we start with education. Before we talk about loan products, we help you understand your financial position, what lenders are looking for and how to present your application in the strongest possible way.

We also have visibility across a wide range of lenders, which means we can match your specific situation to the lenders most likely to approve your application. Different lenders assess income, employment type, savings history and deposit sources very differently. That knowledge matters.

If you have been thinking about buying a home and you’re curious about what opportunities may be available in 2026 and 2027, or you have questions about how the Federal Budget may affect your plans, now is the time to get in touch.

Ready to start your home buying journey? We’ll help you understand your current borrowing position and what may improve your readiness to apply. Book a first home buyer strategy call here.

FAQs: the 2026 Federal Budget

and first home buyers

1. Will the Federal Budget changes actually make housing more affordable for first home buyers?

The Federal Government claims its proposed changes will support more first home buyers to enter the housing market over time, and form part of a package of reforms that will support supply overall.

However, housing affordability is also driven by supply, interest rates and broader economic conditions. Budget changes are one piece of a larger puzzle, not an instant fix.

2. Will Australian investors start selling their properties now, flooding the market with supply?

Existing investors are protected by grandfathering on negative gearing, which means there’s no tax reason to sell an existing investment property as a result of this budget. According to many industry insiders quoted in the media, any softening in investor demand is more likely to show up gradually in new purchase activity rather than a sudden wave of sales.

3. Should I wait to buy my first home, to see if prices drop??

Timing the market is notoriously difficult. A better approach is to focus on being loan ready so that when the right property comes along at the right price, you can take action. Speak to a mortgage broker from The Property Education Company about your timeline, budget and goals so you can make a more informed decision.

4. Do the proposed Federal Budget changes affect first home buyer grants or schemes?

No. The proposed changes to negative gearing and CGT are specifically targeted at investors. Existing first home buyer schemes, grants and stamp duty concessions remain in place.

5. How do I know if I’m ready to apply for a home loan?

The honest answer is that most first home buyers don’t know if they can buy and what their budget will be until they speak to a broker. Key indicators include: stable income for at least six to twelve months, a deposit of at least 5% (ideally more), a clean credit file, minimal existing debt, and a consistent savings history. A mortgage broker from The Property Education Company can assess all of these factors and give you a clear picture of where you stand.

6. How do I get started with The Property Education Company?

The easiest first step is to book a strategy call. We’ll talk through your current situation, your goals and your timeline, and give you a clear picture of what you need to do to become home loan ready. There’s no obligation, no pressure and no cost. Reach out here or call 0468 026 200.

About the author:

As an MFAA-certified finance broker, James Gregors has been helping first home buyers navigate the property market for many years. He is especially dedicated to making sure first time buyers feel educated, confident and supported throughout every step of the process.

Disclaimer: This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

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