According to The Australian’s Mackenzie Scott, more than 102,000 Australians have used the federal government’s 5% first-home buyer (FHB) deposit scheme since it was expanded on 1 October 2025.
Source: REA Group
Analysis by realestate.com.au suggests about 1,143 households that took the offer of buying a home with a deposit of just 5% were likely in negative equity in September, equivalent to 2.4% of purchasers. This compares with just 89 in negative equity in July.
Realestate.com.au economist Luc Redman said many homeowners now in negative equity took on debt at the top of their borrowing capacity in Sydney and Melbourne, which has led the downturn.
Redman expects house prices to keep falling through the rest of 2026 and possibly into early next year, adding that another interest rate rise would push more homeowners into negative equity.
“We’re expecting prices to continue some decline over the rest of this year and potentially into early next year before moderating, but that’s really dependent on what the RBA will do from here”, he said.
“The market is pricing in at least one more rate hike by March … if that’s to eventuate, we’re obviously going to see these homes fall further into negative equity, as well as potentially more households”.
Cotality research director Tim Lawless added: “For the government, it’s probably not a great look. In retrospect, they’ve incentivised first-home buyers to come into the marketplace on a very small deposit without much buffer, which flies in the face of prudential standards from (financial regulator) APRA, and then they’ve introduced a new policy that has probably added to the downturn in the housing market”.
The latest data from Cotality shows that dwelling values have declined by 6.7% from their most recent peak across the five major capital cities, with all markets falling.
HSBC has forecast a 13% peak-to-trough decline in values across the combined capital cities, suggesting that we are only around halfway to the bottom:
AMP also recently downgraded its price forecasts and now expects a 10% to 15% peak-to-trough decline, with risks tilted to the downside:
“We are revising our expected fall to a range of 10% to 15%, with a midpoint of a 12.5% per cent fall”, chief economist Shane Oliver said.
“This is deeper than the range of average capital city property price declines seen over the last 40 years or so but is consistent with the perfect storm now hitting the property market”.
“In particular, the structural shifts in terms of the taxation of investors and the rising trend in interest rates, along with the rising risk of a sharp rise in distressed selling on the back of rising unemployment”.
“Given the uncertainty around the full impact of the property tax changes on demand and the upside risk to interest rates, the risk remains on the downside”, Oliver said.
Thus, recent first home buyers who purchased using the federal government’s 5% deposit scheme are cruising for a bruising.
They have already endured four 25 bp rate hikes from the Reserve Bank, with financial markets tipping at least one more hike. Many also face negative equity as home values fall by more than their deposits.
Some will experience the worst of both worlds: being trapped in homes worth less than their purchase price and paying mortgages that they can no longer afford.
Sadly, the Albanese government suckered thousands of first home buyers into the market at the peak, only to then tank the market via the federal budget’s changes to negative gearing and capital gains taxes.
