Borrowers face rising defaults if RBA lifts rates, warns FBAA boss
Australia is standing by while a “perfect economic storm” gathers force, warns Finance Brokers Association of Australia (FBAA) interim chief executive Peter White (pictured), who fears that policy choices – not just global pressures – are about to push thousands of households to breaking point.
White says today’s expected Reserve Bank of Australia (RBA) rate rise, combined with the federal government’s looming shake‑up of capital gains tax (CGT) and negative gearing, could become “a toxic mix of pain and devastation” for both mortgage holders and renters.
“Surely driving investors out of the market while at the same time increasing interest rates can only result in increased mortgage repayments and higher rental prices,” he argues, adding that it “is not rocket science” that lower‑income Australians will shoulder the greatest burden.
If the RBA does move higher today, it will mark the third hike this year, lifting the cash rate to 4.35% for the first time since early 2025. Equifax analysts warn this will dampen new mortgage demand, with first‑time buyers already appearing to pull back.
The FBAA has been warning since 2021 – before the first rate hike – that aggressive tightening, layered on top of geopolitical shocks, would intensify cost‑of‑living pressures.
White points to recent Finder research showing that 9% of mortgage holders, or around 297,000 people, would default if there are one or two more rate rises. This, he says, mirrors the association’s own research and underlines that many borrowers are already at the edge.
At the same time, the federal Budget is set to confirm the most significant overhaul of investment property tax settings in a generation.
Negative gearing will be fully grandfathered for existing properties, meaning current investors can keep claiming their losses against other income under today’s rules. However, future acquisitions will face tighter restrictions, with a two‑property cap flagged as the leading option, and an alternative model restricting full negative gearing to newly built dwellings also under consideration.
The CGT discount is also in line for a cut. At present, investors who hold an asset for more than 12 months receive a 50% discount on their capital gain. Under the expected changes, that discount would fall to around 33%. Crucially, the government is leaning towards partial grandfathering – protecting gains already accrued on existing assets, while applying the new, lower discount only to future gains. This approach softens accusations of retrospectivity but still reduces the after‑tax return on new investment.
Discretionary trusts are the third pillar of the package. While the detail remains unsettled, Labor has signalled it will introduce a minimum tax rate on trust distributions, with a model similar to its earlier proposal of a 30% floor now widely expected. Because many investment properties are held through family or discretionary trusts, this could materially increase tax bills for higher‑income households and add structural complexity for advisers and brokers.
Read more: Debate rages over CGT, negative gearing reforms
For White, the problem is not simply that investors may pay more tax, but that the combined impact of tighter tax rules and higher interest rates will choke off desperately needed rental supply.
The FBAA recently urged the government not to proceed with CGT and negative gearing changes, warning that “the only result of any move to disincentivise investors… will be to increase the cost of living for anyone who rents”.
New modelling from SQM Research appears to support that concern, predicting capital city rents could surge by about 20% if the reforms go ahead. In that scenario, White warns that would‑be first‑home buyers trying to save a deposit will find it harder than ever to get ahead, while existing renters already “doing it tough” will struggle just to meet higher weekly payments.
He stresses that these outcomes are avoidable. Unlike global conflicts or supply‑chain shocks, White says these are “not economic factors beyond our control, but decisions that are directly leading to darker times for many”.
With the Budget expected to confirm the tax package and markets bracing for further tightening, White believes there is still a narrow window for both the RBA and the federal government to reconsider their trajectory.
“These are not economic factors beyond our control, but decisions that are directly leading to darker times for many, and I hope both the RBA and federal government can change course before it’s too late,” he says.
