2026 Federal Budget: What It Means for First Home Buyers
The Federal Budget has been handed down and Jim Chalmers has been out there saying this is a budget for first home buyers. If you're a first home buyer you're probably seeing a lot of headlines and wondering what it actually means for you and your plans.
In this resource we're breaking down what's actually changed, what it means for the property market as a whole, and most importantly what it means for you as a first home buyer. Whether you're actively out there looking at properties right now, still in the planning stage thinking about your pathway in, or you've recently purchased and you're wondering what this all means for you.
Chris has been having these conversations about property, the economy and market impacts for over a decade and there are very few people better placed to talk about what the budget actually means.
In this resource we're covering:
The two major budget changes affecting property (negative gearing and capital gains tax)
What these changes mean for investors and the property market
How first home buyers in different stages should be thinking about these changes
Interest rate expectations and inflation impacts
What happens from here
This resource supports Episode 37 of the First Home Unlocked Podcast: Federal Budget 2026 for First Home Buyers.
What Actually Changed in the Budget
Let's break down the two major announcements in the budget that are going to affect the property market.
Negative Gearing Changes
In simple terms, negative gearing is when an investment property costs more to own than it earns in rent. Under current rules investors can use that loss to reduce the amount of tax they pay on their wages every year.
From budget night the benefit is no longer available for investors buying established properties. If an investor buys a brand new property they still get the full benefit. It's only investors buying established properties from budget night onwards who are affected.
If an investor already owned a property before budget night they keep their negative gearing benefits. This is called grandfathering.
Capital Gains Tax Changes
Capital gains tax is the tax you pay on the profit when you sell an investment, whether that's an investment property, shares or other assets.
For example if an investor bought a property for $600,000 and sold it for $800,000, that $200,000 profit is a capital gain and they pay tax on it. Under the current rules if they held that property for more than 12 months they get a 50% discount, meaning they only pay tax on half of that gain.
From 1st of July 2027 that changes. Instead of only paying tax on half of their gain, investors will now pay tax on the real gain above inflation with a minimum of 30% tax applying no matter what.
So overall selling an investment property is going to cost more in tax than it does today.
Important Note for First Home Buyers
If you are buying your first home to live in, none of this applies to you. Your home is completely exempt from capital gains tax. When you eventually sell you keep every dollar of that growth tax free.
The government says these changes are expected to support around 75,000 additional first home buyers into the market over the next decade, but the actual number is likely to be much higher than that.
How Investors Are Responding to These Changes
Even though the changes don't officially apply until July 2027, we're already starting to see the behavioural shift happen. Because investors aren't buying a property for one year, they're buying for the long term. So anyone purchasing an established property after budget night knows that from July 2027 the new rules apply to them. The decision to buy or not buy is happening right now.
Why Investors Are Sitting on the Sidelines
The fundamentals for investors just aren't there anymore. If you can't get negative gearing it's really hard to afford an investment property. Secondly they can't really even borrow the money, banks are already changing their servicing calculators for investors and they can't borrow anywhere near as much money as they could pre budget night.
So one, they can't borrow the money. Two, they can't really afford to hold these properties and three, they're less attractive because they're going to pay more capital gains tax. A lot of investors will just sit on the sidelines and wait.
Last year around 200,000 investment properties were bought in Australia. That's a significant portion of demand in the property market and if a large chunk of that demand disappears or shifts to new builds only, it changes the competitive landscape for first home buyers looking at established properties.
What About Existing Investors?
Existing investors have their tax treatment protected under the grandfathering rules, their old rules stay in place. But there's more to it than just the tax treatment.
A lot of existing investors are going to be thinking about whether they want to hold their properties long term or whether now is actually a good time to sell. If prices do start to soften in investor-heavy areas and rental yields stay tight, some investors might decide to exit while they can still take advantage of the old capital gains tax rules.
Like we have mentioned the banks are already tightening lending for investors too which means if someone wanted to buy that property as an investment it's going to be harder for them to get finance. So existing investors who are thinking about selling might find their buyer pool has shrunk significantly.
What This Means for House Prices
One of the biggest things first home buyers want to know is what this means for house prices. The government is saying prices will still grow just around 2% slower per year, but this isn't going to hit every market equally.
Which Areas Will Be Most Affected
Areas that have been heavily driven by investor demand are going to feel these changes the most. That includes:
High-density apartment markets where 80-90% of buyers have historically been investors
Areas with new developments marketed primarily to investors
Markets where rental yields have been the main attraction rather than lifestyle or location fundamentals
If you're looking at a property and you want to understand how investor-heavy that market is, open stats from census data is a good place to start. It'll show you what percentage of properties are owner-occupied versus investment properties and that can give you a sense of how exposed that market is to investor demand.
Quality Assets Will Still Hold Their Value
Properties in areas with strong lifestyle appeal, good infrastructure, proximity to employment hubs, schools and amenities are still going to be in demand from owner-occupiers. First home buyers, families upgrading, downsizers, these groups aren't going anywhere.
The properties most at risk are the ones that were primarily attractive to investors for tax reasons rather than being genuinely desirable places to live and this is exactly why we've always said asset quality matters so much.
For First Home Buyers Actively Looking to Buy Right Now
If you're actively in the market now you might be wondering, should I hold off and see how this plays out or keep moving forward?
Less Competition from Investors
At the time of the budget investors make up around 40% of new lending in Australia. If that starts to drop off significantly first home buyers are going to see reduced competition in the market, particularly for established properties.
That's genuinely good news if you've been getting beaten at auctions by investors or you've been priced out of markets because investors were willing to pay more based on rental yields and tax benefits.
Why You Shouldn't Wait
But you don't want to wait for prices to drop before you start looking. By the time price drops are obvious in the data, other first home buyers will already be back in the market competing with you. Also if interest rates do come down over the next few years, that will encourage even more people to enter the market.
The best buying often happens when it feels uncertain. If you can buy now while rates are a bit higher and you've got less competition, you're positioning yourself well for the long term.
Asset Quality Matters More Than Ever
With negative gearing now only available on new builds you're going to see a lot of promotion around new builds targeted at investors. Developers will be marketing them hard and investors will be pushed toward them.
For you as a first home buyer this creates an opportunity. You may find you have less competition from investors on established properties which is genuinely good news. But asset quality still really matters.
If you are considering a new build yourself the same principle applies. The question you need to ask is the same one you would ask about any property, when that new build is no longer new and you eventually want to sell it becomes an established property. The investors who were attracted to it for the tax incentives won't be in your buyer pool anymore.
So whether you're looking at a new build or an established property the question is always the same, why would someone else want to live here after me? Not would an investor want to buy this, but would a first home buyer, a family upgrading or a downsizer genuinely want to make this their home?
We did a full deep dive on asset quality back in Episode 6 if you need a refresher on what to look for.
For First Home Buyers in the Planning Stage or Still Renting
There's been a lot of chatter about what this means for renters. Some articles are predicting significant rent increases off the back of these changes. The government's own modelling is predicting less than $2 a week increase for someone paying the median rent.
What Could Actually Happen to Rents
The reality is probably somewhere in the middle. Some investors might try to increase rents to offset their reduced tax benefits or to cover higher holding costs. But rental increases are also constrained by what tenants can actually afford to pay and whether there's enough rental supply in the market.
In areas where there's already tight rental supply you might see some upward pressure on rents. In areas where there's more rental stock available and tenants have options, landlords won't have as much pricing power.
What You Should Be Doing Right Now
If you are renting right now and planning to buy your first home, whether you're in the deposit saving stage or you're just not quite ready yet, the advice is the same, keep building your deposit, keep strengthening your financial position and get a plan in place.
Whatever you're seeing in the headlines right now this is actually a really good time to come and get a plan in place. Even if you are six or twelve months away from buying, come and have a chat with us. We can look at where you stand right now, get some figures together and update things as the market plays out.
Be Cautious About Scheme Promotion
One thing worth flagging is that off the back of this budget you might start seeing a lot more promotion around both the 5% deposit scheme and the Help to Buy shared equity scheme.
The government is probably going to expand these schemes to create more first home buyer demand now that investor demand is dropping off. They need to recover that 200,000 investment properties that were bought last year and they're going to do that by making it easier for more first home buyers to enter the market.
The 5% deposit scheme can be a genuinely powerful pathway if you go in with the right plan, the right protections and a long-term mindset. It's something we work through with clients all the time.
The shared equity scheme is a different conversation. With that one you're co-owning with the government and that comes with rules and future implications that are worth understanding before you commit. It's not the right fit for everyone and we would always encourage you to understand what you're signing up for and explore your other options before going down that path.
We've done a full episode on the Help to Buy scheme back in Episode 26 so go back and listen if you want the full picture. As always if you want to talk through what the right pathway looks like for your situation that's exactly what our Get to Know You Chat is for.
For First Home Buyers Who Have Already Purchased
If you bought your first home to live in you might still be feeling uneasy about what slower price growth or a potential dip in values could mean for your property.
If Prices Come Down, Stay the Course
If prices do start to come down and you find yourself in a position where your property value has dropped, the most important thing is to stay the course.
Think about it like investing in shares. The only time you actually lose money is when you sell during a downturn. People who hold through the dips and stick to their long-term strategy are the ones that usually come out ahead. It's the same principle with property.
If you've been listening to this podcast and you've gone through a lot of the upfront work you've made sure you're buying a quality asset you're comfortable holding for at least the next five to ten years. You've got your emergency fund in place and buffers in your cash flow. You have controlled what you can control.
Just stick to your long-term plan and make sure you're still holding onto that asset and doing all the right things.
If You Bought Your First Home as an Investment
If you bought your first home as an investment before budget night your existing negative gearing and capital gains tax arrangements are completely protected. Nothing changes for you on that front.
But you might still be thinking about what all of this means for you going forward. The question is do you want to hold that property long term or is now a good time to consider selling?
Interest Rates and Inflation: What Happens From Here
There's one more piece of context that affects everything we've talked about today and that's interest rates.
The budget modelling has inflation peaking at around 5% in the middle of this year in the base case, but there's also a more severe scenario where oil prices stay elevated and inflation peaks above 7%. The inflation rate is currently sitting at 4.6% and the RBA's target band is 2 to 3%.
With inflation still well above target further rate rises are looking likely before the end of the year.
Building Buffers Into Your Budget
Just make sure you can afford your repayments with those increased interest rates. Stress test your budget at 7% or higher and make sure you're still comfortable.
This is a good opportunity because if in two or three years time rates do come down a lot that will encourage a lot more people to upgrade and you'll see more first home buyers enter as well. If you can afford the mortgage while rates are a bit higher you're positioning yourself really well for when they eventually come down.
What Happens Next
These changes still need to pass through both houses of parliament before they fully come into effect. It's not technically law right now but it is likely that it will go through due to the government's majority.
The proposed start date for the negative gearing and capital gains tax changes is 1 July 2027. But as we've talked about the behavioural change for investors buying established properties started from budget night.
We're already starting to see banks updating their policies around negative gearing for new loans and purchases on established properties. That reduction in investor borrowing capacity is actually one of the reasons this could be good news for first home buyers competing in the established property market.
More to Come
There's a lot going on right now, not just the budget. There's the fear around inflation and interest rates and geopolitical tensions and there's just a lot happening in the market. We're planning to do more episodes to give you an update on how things are tracking and whether anything has shifted from what we've talked about today.
The next election is in 2028 which is a long time away. That's two years and it could be a wild ride until then. Don't bank on policy changes being reversed and don't bank on a different government coming in and undoing all of this. Make decisions based on what you know today and what you can control.
Final Thoughts
Look, there's a lot going on right now and if you're feeling uncertain after everything we've talked about today that's completely understandable.
But here's what we want you to take away from this: no matter where you are in your journey the answer is always the same. Come back to your goals, get the right people around you and make decisions based on your situation.
For first home buyers this is probably the best news they could have in some sense because you can get access to a 5% deposit and a lot less competition. Your buying conditions are going to be better than they probably have ever been. But you've also got to be extremely careful where you buy because some markets are going to be severely challenged over the coming years because they've been driven by investors.
If you want to talk things through you can Book a Get to Know You Chat. We'll help you work out exactly where you stand and map out what your next step looks like.
