Mortgage applications have dropped 26 per cent since February, with the total value of lodgements down 23 per cent over the same period. The pullback follows three RBA rate rises and federal budget tax changes that hit investor calculations and first-home buyer borrowing capacity.
Investors have stepped back hardest, with lodgements down 35 per cent. First-home buyers are down 19 per cent, while upgraders pulled back 15 per cent. Compared to the same two-week period in June last year, total lodgements are 18 per cent lower.
The decline comes off a strong base. The housing market was running hot through late 2025 and early 2026 before the RBA moved and the budget landed. That context matters because it means the current slowdown reflects changed conditions, not a collapse from already-weak activity.
Where the drop is sharpest
Queensland lodgements are down 27 per cent since February. The rest of Australia outside NSW and Victoria, including South Australia, Western Australia, Tasmania, the ACT and Northern Territory, saw the steepest fall at 32 per cent.
NSW lodgements dropped 25 per cent overall, with investors down 28 per cent and first-home buyers down 25 per cent. Upgraders in NSW held steadier, down just 6 per cent.
Victoria experienced a smaller 19 per cent decline, partly because the market was already softer heading into this year. States that saw stronger price growth over the past 12 months appear to have been hit harder once rates rose and borrowing capacity tightened.
What is driving the pullback
Three rate rises since the start of the year have reduced how much buyers can borrow. For first-home buyers, that means lower capacity at a time when the average house price sits above one million dollars. Rising living costs are also making it harder to save a deposit.
Government schemes offering 5 per cent deposit loans remain available, but repayments on a loan with minimal equity are unrealistic for many households at current price levels and interest rates.
Investors are recalculating after budget changes to negative gearing, capital gains tax treatment and discretionary trust taxation. The new settings do not ban investment, but they change the numbers enough that many are pausing to rework their assumptions. Sydney property investors are already factoring in the tax changes as they reassess deals.
Average loan size has risen 2 per cent since the start of the year and 26 per cent since July 2023. Borrowers are taking on larger debts even as applications fall, which means those still entering the market are either upgrading with significant equity or stretching borrowing capacity close to serviceability limits.
Activity hit its lowest point since early 2025
Loan applications spiked in October last year when the 5 per cent deposit scheme was expanded with no income caps. That brought a wave of first-home buyers into the market. The rate rises that followed saw many of those buyers step back as their borrowing capacity fell.
Applications are now at their lowest level since early 2025, before that policy expansion took effect. The question is whether this represents a temporary pause while buyers adjust to higher rates and new tax settings, or the start of a longer period of subdued activity.
Scenarios over the next six months
Base case: lodgements stabilise around current levels through winter, then lift modestly in spring as listings increase and buyers who have been waiting re-enter. Clearance rates and the RBA decision in August will set the tone. If rates hold and auction results firm, activity picks up from September. If the RBA raises again or clearance rates weaken further, lodgements drift lower.
Upside: the RBA signals a pause or cut by year-end, borrowing capacity improves, and spring listings create enough choice to pull buyers off the sideline. Lodgements recover toward late-2025 levels by early 2027.
Downside: another rate rise or weaker employment data keeps buyers cautious. Investor activity stays subdued as tax changes sink in. Lodgements fall another 10 to 15 per cent from here, and spring fails to deliver the usual seasonal lift.
Risks to watch
The August RBA meeting is the next clear decision point. If the board holds rates steady and hints at a longer pause, that gives buyers and brokers a clearer runway. If it raises again, borrowing capacity tightens further and lodgements will likely fall.
Auction clearance rates through July and August will show whether current prices are holding or starting to adjust. If clearances drop below 60 per cent in Sydney or Melbourne, that signals weakening demand beyond what lodgement data already shows.
Investor sentiment is still adjusting to the budget. If lodgements from this segment do not stabilise by September, it suggests the tax changes are having a bigger impact than expected. That would flow through to rental supply and potentially put upward pressure on rents, creating a second-order affordability problem.
What this means if you are deciding now
If you are buying, spring will likely bring more choice as listings increase. Waiting until September gives you a clearer picture of clearance rates and whether the RBA is done raising. The trade-off is that if rates hold and activity picks up, competition returns.
If you are investing, the current pause is a chance to rework your numbers under the new tax settings. Run scenarios with lower negative gearing benefits and higher capital gains tax to see if the deal still works. Discretionary trust tax changes also affect structure decisions, so check how that impacts your setup.
If you are upgrading, lodgement data suggests this segment is holding up better than investors or first-home buyers. Equity from an existing property provides a buffer against higher rates, and competition for quality stock is lower than it was six months ago.
Start here: if you are planning to act in the next four months, get a current borrowing capacity assessment and track clearance rates in your target area through winter. Subscribe to the Australian Property Review newsletter for weekly updates on rates, lodgements and market signals.
General info, not financial advice.
