What Is a Haircut in Finance? Guide for Australian Investors 2025

When you hear the word ‘haircut’, you probably think of a quick trip to the salon. But in the financial world, a haircut has nothing to do with scissors and everything to do with risk, collateral, and the value of your investments. As 2025 brings new shifts in lending standards, superannuation regulation, and market volatility, understanding the concept of a ‘haircut’ is more important than ever for Australian investors and borrowers alike.

What Is a Financial Haircut?

In finance, a ‘haircut’ refers to the difference between an asset’s current market value and the value that a lender will recognise as collateral. In plain English: if you offer up your shares or property as security for a loan, the lender won’t count the full value—they’ll shave a percentage off to protect themselves from market swings or a drop in value. That shaved-off amount is the haircut.

• Example: If you pledge $100,000 worth of shares as collateral and the lender applies a 20% haircut, they’ll only lend you up to $80,000 against those shares.

This practice is widespread in margin lending, repo (repurchase agreement) markets, and even in superannuation fund risk assessments.

Why Do Lenders Apply Haircuts?

Lenders use haircuts to manage risk. The size of the haircut depends on several factors, including the asset’s volatility, liquidity, and the broader economic climate. Haircuts are designed to protect lenders from:

• Market volatility: If the value of your collateral falls sharply, the haircut acts as a buffer.

• Asset liquidity: Less liquid assets (like certain property or niche shares) may attract larger haircuts because they’re harder to sell quickly.

• Credit risk: Riskier borrowers or assets will see bigger haircuts.

In 2025, with continued uncertainty in global markets and a watchful eye from the Reserve Bank of Australia (RBA) on lending standards, banks and non-bank lenders have become even more cautious. Recent APRA updates have prompted lenders to re-evaluate collateral and, in some cases, increase haircuts on certain asset classes.

Haircuts in Action: Real-World Scenarios for Australians

Let’s break down how haircuts impact Australians in everyday financial decisions:

1. Margin Lending

If you take out a margin loan to invest in shares, your lender will apply a haircut to the value of your share portfolio. Blue-chip stocks (like those in the ASX 20) might get a lower haircut (10–20%), while speculative small caps could see haircuts of 30% or more.

2. Superannuation Funds

Super funds often use haircuts when calculating the net value of illiquid or complex assets (think infrastructure or private equity). In 2025, with new APRA guidance on risk management, funds must be even more transparent about how they discount asset values to protect members from overestimating their retirement savings.

3. Property-Backed Lending

Offering up a property as collateral for a business loan? Lenders will apply a haircut based on the property type, location, and market conditions. Commercial properties in regional areas may see higher haircuts (up to 40%) compared to residential properties in major cities (typically 20–25%).

How 2025 Policy Changes Are Shaping Haircuts

This year, several Australian regulatory shifts are influencing how haircuts are set:

• APRA’s Enhanced Collateral Valuation Standards: From April 2025, superannuation and ADI (Authorised Deposit-taking Institution) lenders are required to review collateral haircuts more frequently, especially for non-standard assets.

• RBA’s Repo Market Adjustments: The RBA has adjusted the list of eligible securities and increased haircuts on certain lower-rated bonds, impacting institutional investors and banks who use these instruments for liquidity.

• ASIC’s Margin Lending Guidelines: Stricter responsible lending standards have led to higher haircuts on riskier equity portfolios and greater transparency for retail investors.

All of these changes mean that investors and borrowers need to be more aware of how the assets they pledge are being valued—and how much of a buffer is being built in to protect lenders from risk.

What Should Investors and Borrowers Watch For?

• Review your loan agreements: Check the haircut applied to your collateral and ask how it’s calculated.

• Monitor asset volatility: If the market value of your collateral drops, you could face a margin call or need to provide more security.

• Stay up-to-date on policy changes: Regulatory tweaks in 2025 may affect haircuts overnight—especially in super funds and for property investors.

• Diversify your assets: Spreading risk can help reduce the impact of large haircuts on any single investment.

The Bottom Line

Haircuts in finance aren’t about style—they’re about safety. As regulatory requirements tighten and market conditions remain dynamic in 2025, understanding how haircuts affect your borrowing power, investment returns, and superannuation balance is essential. Whether you’re gearing up for your first margin loan or reviewing your retirement portfolio, keep an eye on the fine print—and don’t be surprised if the numbers you see aren’t quite as glossy as the market price.