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

Gearing, or borrowing to invest, remains a significant strategy for Australians looking to build wealth. In 2026, the financial environment is evolving, and gearing decisions require careful consideration. Whether you’re interested in property, shares, or other assets, it’s crucial to understand both the potential benefits and the risks that come with leveraging your investments.

At its core, gearing involves using borrowed funds to purchase investments. The aim is simple: if your investment returns exceed the cost of borrowing, you can grow your wealth faster than relying solely on your own capital. However, if returns fall short, losses are magnified, and your financial position can quickly become more precarious.

Types of Gearing

• Positive gearing: The income from your investment (such as rent or dividends) exceeds your loan costs, resulting in a net gain.
• Negative gearing: The investment income is less than your expenses, leading to a net loss. This loss may be used to offset other taxable income, depending on current tax rules.

Gearing is most commonly associated with property and share investing, but it can apply to other asset classes as well. In 2026, changes in lending practices, interest rates, and ongoing tax policy discussions are all influencing how Australians approach gearing.

Several factors are shaping the gearing landscape this year:

• Lending standards: Regulatory bodies have maintained stricter lending criteria, including serviceability assessments and debt-to-income caps. These measures are designed to prevent over-borrowing and ensure borrowers can manage repayments if conditions change.

• Interest rate movements: Variable interest rates have fluctuated in recent years, affecting the cost of borrowing. Investors need to be prepared for potential changes in repayments if rates shift again.

• Tax policy discussions: Negative gearing continues to be a topic of political debate, with proposals for changes under consideration. While no new laws have been enacted, it’s important not to base your entire strategy on current tax settings, as they may evolve.

Gearing can offer significant advantages, but it also introduces additional risks. Here’s how Australians are using gearing in 2026:

Property Investors

Many property investors use negative gearing to manage cash flow and potentially reduce taxable income. However, with property price growth slowing in some areas and rental yields stabilising, the benefits of gearing are being reassessed. Investors are more cautious about leverage levels and are paying close attention to their ability to service loans if conditions change.

Share Market Investors

Margin lending—borrowing to invest in shares—remains popular, particularly among those seeking exposure to established companies. However, recent market volatility has highlighted the importance of risk management. Sudden market corrections can trigger margin calls, forcing investors to sell assets at unfavourable prices if they cannot meet loan requirements.

Self-Managed Super Funds (SMSFs)

Some SMSFs use limited recourse borrowing arrangements to invest in property. With increased regulatory scrutiny, trustees are being encouraged to regularly review their portfolios and ensure they can withstand changes in interest rates or property values.

Before deciding to gear your investments, consider the following:

• Can you manage higher repayments if interest rates rise? Model your repayments at higher rates to ensure you can cope with potential increases.
• What happens if your investment value falls? Assess whether you could hold onto your investment during a downturn, or if you might be forced to sell at a loss.
• How stable is your income? Consider how job loss, illness, or other disruptions could impact your ability to meet repayments. Having appropriate insurance or a backup plan is essential.
• Are you relying on current tax rules? Tax policies can change. Make sure your investment strategy is robust enough to handle adjustments to tax treatment.

Stress-testing your plan, maintaining a cash buffer, and avoiding excessive leverage are all prudent steps in the current environment. Many mortgage brokers suggest keeping total debt within a manageable range relative to household income, in line with regulatory guidance.

If you decide that gearing is right for you, consider these strategies to help manage risk and maximise potential returns:

Diversify Your Investments

Avoid concentrating all your geared investments in a single asset class. Spreading your investments across property, shares, and other assets can help reduce overall risk.

Consider Fixed and Variable Rates

Locking in a portion of your debt at a fixed rate can provide certainty around repayments, while keeping some variable exposure allows you to benefit if rates fall. Review your loan structure regularly to ensure it aligns with your risk tolerance and market conditions.

Use Offset Accounts

An offset account allows you to reduce the interest payable on your loan by keeping surplus cash in a linked account. This can improve your cash flow and provide flexibility if your circumstances change.

Review Your Insurance

Protecting your income and assets is crucial when you have geared investments. Consider income protection and insurance options to help cover loan repayments if you’re unable to work. If you own investment property, ensure you have adequate landlord insurance to cover potential risks.

Monitor Your Loan-to-Value Ratio (LVR)

Keeping your LVR below certain thresholds can help you avoid additional costs like lender’s mortgage insurance and reduce your exposure to market downturns. Regularly review your LVR and consider making extra repayments if your financial position allows.

The financial landscape is always changing, and 2026 is no exception. Regularly reviewing your gearing strategy is essential, especially as lending standards, interest rates, and tax policies continue to evolve. Stay informed about regulatory developments and be prepared to adjust your approach if needed.

If you’re unsure about the best way to structure your investments or manage risk, consider seeking advice from a qualified financial adviser or mortgage broker. They can help you assess your options and tailor a strategy that suits your goals and risk appetite.

Gearing can be a powerful tool for building wealth, but it’s not suitable for everyone. In 2026, with ongoing changes in lending, interest rates, and tax policy, it’s more important than ever to approach gearing with caution and a clear understanding of the risks involved. By stress-testing your plans, maintaining financial buffers, and reviewing your strategy regularly, you can make more informed decisions about leveraging your investments for long-term growth.