Gearing in 2026: Pros, Cons & Smart Strategies for Australians

In simple terms, gearing means borrowing money to invest. The logic is straightforward: if your investment returns exceed the cost of your loan, you profit on someone else’s money. If not, losses are magnified. Gearing is most common in property and share investing, but it’s not for the faint-hearted.

• Positive gearing: Income from the investment covers loan costs and then some—think rental yields outpacing mortgage repayments.

• Negative gearing: Investment income falls short of expenses, but the loss may be offset against other taxable income.

In 2026, several factors are reshaping the gearing landscape:

• APRA lending rules: Stricter serviceability buffers and debt-to-income caps introduced in late 2024 are still in force, making it harder to over-extend.

• Interest rate volatility: The RBA’s mixed signals have seen variable rates swing between 5.7% and 6.4%, impacting cash flow for geared investors.

• Tax policy debates: Negative gearing remains under political scrutiny, with proposals for phased changes from July 2026 on the table, though not yet law.

Gearing can be a game-changer, but also a cautionary tale if the market turns. Here’s how Australians are using gearing in 2026:

• Property investors: Sydney’s inner west saw investors using negative gearing to offset losses as rental yields tightened. However, with property price growth slowing and rents plateauing, some are now rethinking leverage levels.

• Share market enthusiasts: Margin lending has resurged, with more Australians using borrowed funds to buy ASX blue chips. Yet, after the March 2026 tech correction, several high-profile investors faced margin calls, highlighting the need for robust risk management.

• Superannuation funds: SMSFs are increasingly using limited recourse borrowing arrangements to gear into property. With the ATO tightening compliance checks, trustees are being urged to stress-test their portfolios against rate rises.

One notable example: A Melbourne couple leveraged $200,000 to purchase a $1.2 million investment property in 2022. Their net rental loss in 2024-25 was $15,000, offsetting taxable income. But after the RBA’s unexpected rate hike in February 2026, their repayments jumped, shrinking their cash buffer and prompting a portfolio review.

Before diving into gearing, savvy investors are asking:

• Can I handle higher repayments if rates rise again? Use online calculators to model repayments at +2% above current rates.

• What if my investment value falls? Would you be forced to sell at a loss, or can you ride out a downturn?

• How secure is my income? Job loss or illness can strain cash flow. Do you have insurance or a backup plan?

• Will tax rules change? Negative gearing’s future remains a hot-button issue. Don’t base your strategy solely on current tax breaks.

2026’s best practice is to stress-test your plan, keep a cash reserve, and avoid over-leveraging. Many mortgage brokers now recommend capping total debt at five times household income, in line with APRA’s new guidance.

Looking to maximise the upside while protecting yourself?

• Diversify: Don’t gear everything into one asset class—spread risk across property, shares, and cash.

• Fix rates where possible: Lock in a portion of your debt to protect against further rate hikes.

• Use offset accounts: Maintain liquidity and reduce interest costs by parking spare cash in an offset facility.

• Review insurance: Ensure you have adequate income protection and landlord insurance.

• Monitor loan-to-value ratios (LVR): Keep LVRs below 80% to avoid lender’s mortgage insurance (LMI) and reduce risk.

Financial advisers in 2026 are urging investors to revisit their gearing strategies regularly, especially as new government proposals on negative gearing and capital gains tax exemptions could reshape the playing field from July 2026 onward.