CBA has warned that parts of the market are edging into dangerous territory, with some low‑deposit first home buyers facing almost no equity.
The Commonwealth Bank of Australia (CBA) has updated its price and credit forecasts after three consecutive cash rate hikes and the federal government’s housing tax overhaul while highlighting rising negative‑equity risks in Sydney and Melbourne.
At the centre of CBA’s warning is a group of first home buyers (FHBs) who used small deposits to step into expensive markets just as the cycle turned.
The bank looked specifically at borrowers who bought early this year under the federal Home Guarantee Scheme, which allows eligible FHBs to purchase with deposits as low as 5 per cent.
On CBA’s revised outlook, Sydney dwelling prices are expected to drop by around 6 per cent through 2026, while Melbourne is forecast to fall 7 per cent over the same period.
To show what that meant at a household level, in Sydney, it looked at an FHB who bought a $1.5 million dwelling – the maximum allowed under the scheme – with a 5 per cent deposit and had been paying principal and interest all year.
If prices fall as projected, CBA estimates that buyer would finish 2026 with only $2,377 of equity.
In Melbourne, where the starting price in the example is $950,000, the numbers are even more confronting: after a year of repayments and a 7 per cent price fall, the borrower would be almost $8,000 underwater, with the loan exceeding the property value.
CBA senior economist Trent Saunders said those figures reflected a market that was already weakening under higher interest rates before the budget changes arrived.
“The tax changes have accelerated a slowdown that was already underway,” he said.
Investor tax reform reshapes where and how money flows
CBA also said the federal budget’s negative‑gearing and capital‑gains changes had already cooled demand and that it believed inquiries would continue to plateau.
“Demand for lending has already weakened in Q1 2026 and we expect it will weaken further, driven by lower investor demand,” it said.
“The slowdown has been concentrated in established dwellings, which make up most new lending and where the tax treatment becomes less favourable. Lending for new builds should be more resilient and may increase because of the relatively favourable tax treatment under the changes to housing tax policy.”
The bank identified three distinct ways the new policy settings would likely dampen investor activity.
CBA pointed out that once deductions and capital‑gains concessions were dialled back, many existing properties would produce weaker returns on a post‑tax basis, stating “some investors will find established dwellings less attractive because after-tax returns have declined”.
The second channel runs through serviceability assessments and the amount lenders are prepared to advance.
Under the proposed framework, banks will no longer be able to treat the full, current‑year tax benefit from negative gearing as income for borrowing‑capacity purposes.
CBA said this would directly cap how much some clients could borrow, noting that “borrowing capacity will be lower as lenders no longer include the current-year tax benefit from negative gearing when assessing serviceability”.
The third point relates to the uncertainty around the reforms, with the bank believing that mounting confusion would lead to some would‑be buyers sitting tight.
“Uncertainty itself may delay decisions. Some investors and owner-occupiers are likely to wait for more clarity on market conditions and final implementation details before committing,” CBA said.
Loan numbers and credit growth set to retreat
On volumes, CBA’s modelling implies a significant contraction in new housing lending over the remainder of 2026.
For investors, the bank expects new loan numbers to slide from around 60,000 in the December quarter of 2025 to roughly 32,000 by the end of 2026.
Yet it noted that part of the weakness reflected the cumulative 75 basis points of RBA hikes delivered this year.
Meanwhile, CBA forecast the number of new owner‑occupier loans to fall from around 90,000 at the end of 2025 to about 70,000 by late 2026, which equates to volumes sitting roughly 15 per cent below their Q4 2025 reading.
The bank estimated that investor housing credit growth will slow to about 3.5 per cent in the middle of 2027, before gradually recovering to just under 4.5 per cent by year’s end.
For owner‑occupiers, credit growth is projected to dip to around 5.5 per cent in early 2027 and then lift back to just below 6 per cent by the close of that year.
Despite the near‑term slowdown, the bank stressed that it did not regard the outlook as permanently bleak.
“We expect lending to start to recover over 2027 as the uncertainty wanes and interest rates decline. Over time, we also expect lower housing prices and higher rents to gradually incentivise investors back into the market, as rental yields increase,” CBA said.
[Related: Comyn says CGT changes should only apply to property]
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