First-home buyer mortgage demand fell 20 per cent in the year to August, the sharpest annual drop since 2022 when the Reserve Bank was lifting rates at the fastest pace in three decades. The figures, published by credit bureau Equifax, track a period that includes the weeks immediately after the federal government announced negative gearing and capital gains tax changes in the May budget, reforms pitched as levelling the playing field for younger buyers.
Overall mortgage demand was down 14.1 per cent over the same period, meaning first-home buyers pulled back harder than the broader market. The average loan size for a first-home buyer sits at $740,000, an all-time high.
Why the pullback is sharper for first-home buyers
Three forces are compounding. Serviceability is tighter: a $740,000 loan at today’s rates requires roughly $130,000 in household income to meet the 3 per cent interest buffer lenders apply, assuming no other debt. Cost of living has eaten deposit savings, younger households skew toward rent and discretionary spending that doesn’t compress easily. And uncertainty around the policy changes themselves may have shifted the decision calculus for buyers who were already marginal.
The timing matters. The Equifax data covers the year to August, so the 20 per cent decline began well before the budget announcement. But the announcement itself introduced a new variable: if negative gearing restrictions and tighter capital gains tax rules signal that prices will moderate further, waiting becomes rational for a buyer who’s already stretching. The policy was designed to reduce investor competition, but the side effect is a price expectation that delays first-home buyer entry rather than accelerating it.
The catch
- The 20pc drop in first-home buyer demand is measured year-on-year, meaning it captures the full 12 months to August, not just the post-budget period.
- Investor loan approvals fell 8.9pc in the June quarter versus 2.9pc for first-home buyers, per Australian Bureau of Statistics figures, suggesting competition is easing, but first-home buyers aren’t filling the gap.
- Average loan size of $740,000 implies the marginal first-home buyer is either locked out entirely or borrowing at the upper limit of serviceability, with little buffer for rate rises or income shocks.
The policy’s intended supply boost hasn’t arrived yet
The government’s case rests on two claims: reduced investor competition gives first-home buyers a clearer run at auctions, and over the next decade the tax changes will help 75,000 additional buyers into the market. The Equifax figures don’t disprove that, but they don’t support it yet either.
The Australian Government 5 per cent Deposit Scheme has saved first-home buyers $2.3 billion in lender’s mortgage insurance since its introduction, and the government points to quarterly ABS data showing first-home buyer approvals held up better than investor approvals in the June quarter. But a smaller decline relative to investors is not the same as growth in absolute terms. First-home buyer approvals are still falling, just less sharply than investor approvals, and the Equifax demand figures show the gap widening again in August.
The housing target tax changes break the development equation in ways that make supply slower to respond than the policy assumes. Developers who relied on presales to investors now face a thinner buyer pool, which delays project starts and pushes more projects into the build-to-rent model that delivers rental housing but not homeownership stock.
Who carries the risk of this stall
First-home buyers who wait for clarity on prices carry the risk that rates stabilise or fall before prices do, compressing the window when both are favourable. Buyers who stretch now carry serviceability risk if unemployment ticks up or if variable rates don’t track RBA cuts as closely as expected.
For the policy itself, the risk is that the reform reduces investor activity without lifting first-home buyer participation enough to replace it, leaving fewer transactions, less liquidity, and a supply response that stalls because the marginal developer can’t get financing without presales.
The structural issue is age and equity. Older, equity-rich borrowers now dominate new lending because they can service larger loans with smaller income multiples and absorb rate volatility. Younger buyers without existing property equity face a double filter: they need both the income to service a $740,000 loan and the deposit to get there, and rising wages haven’t kept pace with either.
Base case, upside, downside
Base case: first-home buyer demand stays weak through the rest of 2025 as buyers wait for clearer signals on both prices and rates. Investor activity remains subdued under the new tax settings. Supply growth undershoots targets because fewer projects can secure presales. Prices drift sideways in most markets, with sharp falls limited to oversupplied apartment precincts.
Upside: the Reserve Bank cuts faster than expected, serviceability loosens, and wage growth accelerates enough to bring marginal first-home buyers back into range. The policy’s investor-competition reduction starts to show up in auction clearance rates favouring first-home buyers by mid-2026.
Downside: unemployment rises, credit conditions tighten further, and first-home buyer demand falls below 2020 lows. The policy debate shifts from supply to demand-side measures, stamp duty relief, deposit guarantees, income support, that don’t address the structural affordability gap but become politically necessary to avoid locking an entire cohort out of homeownership.
What happens over the next four months
September and October quarterly data will show whether the post-budget pullback is a one-off reaction or a sustained shift. Watch for two indicators: the gap between first-home buyer and investor loan approvals (if it narrows, the policy is working as intended), and the absolute level of first-home buyer activity (if it keeps falling, reduced competition doesn’t help if the buyer pool is shrinking faster than the seller pool).
The spring auction season will test whether reduced investor bidding translates to better first-home buyer outcomes. If clearance rates stay low and days on market keep rising, the price expectation that’s keeping buyers on the sidelines will reinforce itself.
For developers, the next four months are critical for presales on projects due to start in 2026. If they can’t hit financing thresholds without investor buyers, expect more delays and a slower supply response than the 1.2 million homes target assumes.
If you’re a first-home buyer deciding now
Start here: pressure-test your serviceability at 7 per cent, not today’s rates. If a $740,000 loan requires you to cut spending to zero margin, you’re not buying a home, you’re buying exposure to employment risk and rate risk with no buffer.
If you can service the loan comfortably and the property fits a 7-10 year hold, reduced competition from investors gives you a better chance at negotiation than you’ve had since 2020. If you’re stretching to get in because you’re worried about being priced out, waiting three to six months for more RBA clarity is the safer call.
The government’s deposit scheme and lender’s mortgage insurance savings are real, but they don’t change the serviceability constraint, and that’s the binding limit for most first-home buyers right now.
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General info, not financial advice.
