When the Government Moves, Banks Adapt: Why Borrowers Have Always Found a Way

When the Government Moves, Banks Adapt: Why Borrowers Have Always Found a Way

A mortgage broker's take on the negative gearing and SMSF reforms — and what history tells us happens next.

The pattern nobody talks about

Every few years, a government or regulator announces a change that's meant to "cool the market," "reduce risk," or "level the playing field." Headlines scream that borrowing is about to get harder. Investors panic. Dinner-party economists declare property dead.

And then something predictable happens: the banks adapt, new products appear, and money keeps flowing — just through slightly different pipes.

I've watched this cycle repeat across my career. It's not that regulation doesn't work. It does. But lenders are commercial animals. When one door narrows, they compete to open another. Borrowers who understand the pattern don't get scared — they get positioned.

With the 2026 Budget's changes to negative gearing, capital gains tax, and SMSF borrowing now confirmed, it's worth looking at history before predicting the future.

Three times the market said "it's over" — and banks proved otherwise

1. The 2014 investor speed limit

In December 2014, APRA told banks to keep investor loan growth under 10% a year. Everyone expected investor lending to freeze.

What actually happened? Growth ran to nearly 28% the following year — almost three times the "limit". Banks got creative with how they classified and courted borrowers, and demand simply rerouted. The cap was real, but the appetite found a path.

2. The 2017 interest-only crackdown

In March 2017, APRA capped new interest-only lending at 30% of new mortgages and forced banks to hold more capital for each one. Interest-only lending was sitting near 40% at the time — this was a genuine squeeze.

Here's the interesting part: the market re-organised around it. The majors, stuck with oversized investor books, backed off. But smaller regional banks and non-bank lenders — who didn't have that problem — stepped straight in, offering competitive rates and higher LVRs, some lending investors up to 95% LVR on interest-only terms. Meanwhile the majors invented "honeymoon" P&I rates to shift borrowers toward principal-and-interest. Different structure, same outcome: people who wanted to buy, could.

3. The 2019 serviceability floor removal

For years, banks had to test every borrower against a 7.25% interest rate floor. In 2019, APRA scrapped it, letting banks set their own assessment rates against actual rates plus a buffer. Overnight, borrowing capacity jumped for millions of Australians — the same person could suddenly borrow materially more. When the rulebook loosened, banks moved fast to lend against it.

The lesson across all three: regulation reshapes the how, rarely the whether. Lenders compete, non-banks fill gaps, and product innovation absorbs the shock.

What just changed: the 2026 reforms

Two big shifts are now law, both starting 1 July 2027:

Negative gearing — For established residential properties bought after 7:30pm on 12 May 2026, you can no longer offset rental losses against your salary or wages. Losses can only be applied against other residential rental income or future capital gains, with excess losses carried forward. Crucially:

• New builds are exempt — they keep full negative gearing.

• Existing owners are grandfathered — anything held before Budget night (including contracts not yet settled) keeps the old rules until sold.

• SMSFs and widely-held trusts are excluded from the negative gearing changes.

Capital gains tax — The 50% CGT discount is being replaced with cost-base indexation and a 30% minimum tax on capital gains from 1 July 2027 — but new builds can still choose the old 50% discount.

SMSF borrowing — Separately, the Government has agreed to ban Limited Recourse Borrowing Arrangements (LRBAs) for SMSFs buying residential (and other non-business) property. It commences 45 days after the Bill receives Royal Assent, existing arrangements are expected to be grandfathered, and it applies to both new and established homes.

Read together, the message is deliberate: tax and lending support is being funnelled toward new housing supply, and away from geared SMSF property plays.

My predictions: what banks will do next

Based on how lenders behaved in 2014, 2017 and 2019, here's where I expect the market to move.

1. A lending war on new builds and off-the-plan. With negative gearing and the CGT discount both preserved for new builds, expect banks to design investor products specifically around them — sharper rates, construction-friendly drawdowns, and marketing aimed squarely at investors chasing the surviving tax benefits. New-build finance becomes the hot category.

2. Non-banks step into the SMSF gap — fast. When the LRBA door closes, the same thing that happened in 2017 will happen again: capital reroutes. Expect growth in SMSF-friendly structures that don't rely on borrowing (larger cash purchases, unit trust arrangements, tenants-in-common with members), and non-bank lenders pushing business-real-property LRBAs, which the ban doesn't touch. Business owners buying their own premises through super will be courted heavily.

3. A pre-1 July 2027 rush — and banks fuelling it. Grandfathering creates a deadline. Anyone wanting established-property negative gearing under the old rules is incentivised to buy before the window shifts. Expect banks to ramp up investor pre-approvals and turnaround times to capture that demand while it lasts.

4. Serviceability rebalancing. Losing the salary-offset on established properties reduces after-tax cash flow for new investors. Expect lenders to compete on the levers they do control — assessment buffers, rental income shading, and offset/redraw features — to keep borrowing capacity workable. Note the counterweight: from 1 February 2026, APRA capped high debt-to-income lending (6x+ income) at 20% of new loans, separately for investors and owner-occupiers. Banks will manage borrowers within that cap, not around it.

5. Advice becomes the differentiator. When the rules get more complex, the value shifts from the loan to the structuring. The winners won't be whoever has the lowest rate — they'll be whoever gets the ownership structure, timing, and property type right. That's the whole game now.

The takeaway

History is clear: government moves the goalposts, and banks find a new way to score. 2014, 2017 and 2019 all "should" have killed investor borrowing. None did — they just changed its shape.

The 2027 reforms are real and significant. But if the past is any guide, capital will follow the incentives the Government left standing: new builds, business-property structures, and well-timed, well-structured deals. The borrowers who win won't be the ones who panic — they'll be the ones who position early.

Tanuj Kapoor | Mortgage Broker | Jabsons Finance

Ex-Senior Manager QA & Automation | MBA | B.E. (Comp Sci)

Tanuj Kapoor is a credit representative (557159) of BLSSA Pty Ltd ACN 117 651 760 | Australian Credit Licence 391237.

Disclaimer: The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. It is not personal advice, credit advice, tax advice or legal advice, and is not a recommendation to enter into, refinance, or remain in any particular credit contract. Any figures, calculations, or projections shown are simplified examples for illustration only — they are not guarantees or forecasts, and actual outcomes will vary based on your circumstances and the lender's assessment. Before acting on any information here, you should consider whether it's appropriate for you and seek advice from a licensed mortgage broker, financial adviser, tax adviser, and/or solicitor. Lending policies, interest rates, and tax laws change over time and vary between lenders and states — always confirm current details before making a decision.