Why Labour's tax reform is quietly destroying your borrowing power

Everyone is focused on the tax reform, but your borrowing power is already changing quietly.

The headlines are hitting you every day. Rate hikes. High inflation. And Labour's biggest tax change in a generation.

Everyone is arguing about negative gearing and capital gains tax. But here is what no one is telling you: Your borrowing power has already changed. Not in 2027. Now.

Banks are already adjusting their assessment models. If you wait for the legislation to pass before checking your position, you may have already missed the window.

Let me explain what is happening, why the majors are tightening, and — most importantly — where the opportunity remains.

A $166,000 gap

Industry cases have already shown the problem.

When banks apply the new negative gearing rules (applicable to properties purchased after the 2026 budget) to assess a loan, applicants with identical income, deposit, and property saw their borrowing capacity drop by approximately $166,000.

Why? Under the new rules, rental losses can only be deducted against other rental income or future capital gains. Not against your salary. Banks no longer count tax refunds as part of your income.

Here is how the math works. Assume a 34.5% marginal tax rate and a property generating a $20,000 annual net loss. Under the old rules, you receive approximately $6,900 in tax refund, and the bank counts this as income. Under the new rules, you receive no refund against your salary, and the bank treats the property as a pure $20,000 annual cash outflow.

It should be noted that, as of today, the major banks have not formally announced changes to their negative gearing calculator policies. But industry observations show changes are already happening.

Three things that are actually affecting you

The tax reform is noisy, but these three things are directly and measurably reducing your borrowing power.

First: Banks are quietly tightening.

APRA introduced a hard quota on major banks starting 1 February 2026. Loans with a Debt-to-Income ratio above 6 cannot exceed 20% of new loans. This is a hard limit.

What does this mean? You could have perfect credit, a stable job, and a solid deposit. But if the bank has already used up its monthly "high DTI" quota, you get declined. It is not about you. It is about the bank running out of spots. Property investors are most affected because their debt levels are typically higher.

Second: The bank assumes you spend more than you do.

Banks use a measure called HEM to calculate your minimum living expenses. It does not matter how frugally you actually live. The bank has its own table. Inflation has pushed HEM up. For a family of four in Sydney, the bank now assumes you spend at least $4,850 per month just to survive.

That is $58,000 per year in "assumed expenses" before you even apply for a mortgage.

Third: You are being tested at 9.2%.

APRA requires banks to test you at your actual interest rate plus 3%. Major bank variable rates are currently around 6.2%, which means you are being tested at 9.2%.

That 3% buffer, combined with the higher HEM, has already cut borrowing capacity by $250,000 to $280,000 compared to 2021. We see this every single day.

Fixed rates are also rising

Many people have not noticed: the major banks have started pushing fixed rates above variable rates. This is not a forecast. It is happening now.

Every 0.5% increase in fixed rates, combined with the 3% buffer, reduces your borrowing capacity by $30,000 to $40,000. If you have a fixed loan expiring soon, do not wait until the last minute.

Where the majors are failing and non-banks are stepping up

This is the most important part of this article.

The major banks are stuck under APRA's quota. It is not that they do not want to approve your loan. They cannot — their quota is exhausted.

Non-bank lenders are NOT subject to APRA's DTI cap. They are regulated by ASIC. Different regulator, different rules.

Non-bank rates are indeed higher — typically 0.6% to 1.1% higher. But here is the real question:

Would you rather have a $600,000 loan at 6.2% rate, or $750,000 loan at 6.8% rate?

In Sydney, that extra $150,000 in borrowing power is often the difference between buying a home and watching from the sidelines. And in 12-24 months, when your equity has grown and APRA's quotas have reset, you can refinance back to a major bank. Non-banks are a bridge, not a destination.

Rates are not coming down anytime soon

The RBA raised rates again in May. The latest forecasts show the cash rate will reach 4.7% by the end of 2026. Core inflation is not expected to return to the target band until the second half of 2027.

Three months ago, the RBA predicted this would happen by the end of 2026. That delay has pushed out by a full year. This means rates will stay higher for longer.

Four things you should do right now

First, check your borrowing power now. We will run your numbers through both major bank and non-bank calculators. The difference might surprise you.

Second, calculate your DTI before applying. Total debt divided by your annual income. If it is above 6x, do not rush to a major bank. Ask about non-bank options first.

Third, stress-test yourself at 9.2%. The banks test you at 9.2%. You should too. If you cannot comfortably afford it, either fix your rate now or pay down some debt before the next hike.

Fourth, ask about non-bank options early. Do not wait until a major bank says no. We can get you pre-approved with a non-bank lender in days, not weeks.

The bottom line

Everyone is arguing about the tax reform. But the things actually affecting your borrowing power are already here: APRA's quota, rising HEM, the 3% buffer, and fixed rates going up. The tax reform is just adding fuel to the fire.

The tax changes are not yet law. But the majors are already tightening. Non-banks are stepping up. MoreMore Finance is here to help you navigate this market.

If you want to know your real borrowing position — not what the headlines say, but what a lender will actually approve — give us a call. We will run the numbers. And we will tell you which path actually gets you the keys.