New home lending down as interest rate hikes bite

The number of new home loan commitments dropped across the board in the first three months of 2026 with owner occupier lending seeing the biggest drop off.

New lending figures, released on Wednesday, show the number of new owner occupier home loans fell 6.9% from the previous quarter, while their value fell by 4.3%.

First homebuyer lending fared a little better, with the number of new loans dropping by 4.3% over the March quarter and value falling more sharply to 6.7%, suggesting some price softening in the housing market.

Investor lending, which had reached record levels over the previous two quarters, also fell 5.3% in number and 3% in value.

Investor figures are widely expected to plunge further in the wake of Tuesday’s federal budget, which stripped negative gearing and capital gains tax (CGT) concessions for future property investors.

See also : How will homebuyers benefit from the 2026 federal budget?

Overall, the value of new housing lending fell by 3.8% in the first quarter of 2026 to $103 billion, the weakest quarterly change in three years.

On an annualised basis, however, new lending is up 18.5% on a year ago.

Why has home lending dropped in 2026?

The drop in March quarter home lending coincides with two Reserve Bank cash rate increases in February and March, followed by a third consecutive hike in May.

This has had considerable flow-on effects to both home loan serviceability and buyer confidence which has also been hit by uncertainty surrounding the conflict in the Middle East and higher oil prices.

Property market analysts have noted the slowing of price growth in 2026, particularly in the Sydney and Melbourne markets where some values have gone backwards.

See also: Sydney, Melbourne hit first house price falls in years as Perth surges ahead

The latest lending figures show New South Wales and Victoria recording the largest falls in home lending while South Australia was the only state to record an increase.

New headwinds ahead

The new budgetary measures to scrap negative gearing and the capital gains tax discount for investors are expected to further slow lending growth.

Commonwealth Bank economists released an updated Housing Outlook on Wednesday, forecasting national dwelling price growth will slow to 3% in the year to December 2026, down from their original forecast of 5%.

Growth is expected to remain unchanged at 3% for 2027.

But Commonwealth Bank senior economist Trent Saunders said there is a key risk there may be a bigger short-term hit to buyer confidence in the wake of the policy changes.

“There is a risk that house prices respond more sharply in the short term due to shifts in sentiment,” he said.

“If this occurs, price growth could slow by more than implied by fundamentals alone over the coming year.”

He said if this happens, the bank’s modelling suggests housing prices could eventually be around 5.5% below their baseline level.

While the capital gains tax discount still applies to investment in new homes, CommBank said if the reforms lower future housing prices, investors could lose their appetite for housing overall, including investing in new dwellings.

In recent years, lending for new builds has accounted for 4-5% of investor lending, down from around 10% before the pandemic.

It remains to be seen whether investors will turn their attention to new housing which will see them retain negative gearing and some capital gains tax benefits.

Banks to be hit by investor changes 

Already on Wednesday, the day after the budget was handed down, Australian bank shares dropped sharply on the ASX with analysts forecasting a sustained drop in lending and credit growth.

Property analysts are also tipping a decline in listings as investors hold onto their properties for longer to keep grandfathered tax benefits.

There are also some fears the lost investor tax benefits may be passed on in the form of higher rents.

But CommBank economists are forecasting there is likely to be only a very small and gradual impact on rents from the tax changes.

They broadly agree with Treasury estimates that rents could increase by around $2 a week for households paying the current median rent.

Advertisement

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.