First home buyer loan demand has now fallen for three months running. September applications were 22.1 per cent lower than a year earlier, according to a credit ratings agency’s consumer market gauge. The two months before that showed annual falls of roughly 20 per cent and 19 per cent, so the slide is deepening, not levelling off.
That is awkward timing for policy. The May federal budget tax changes were presented as a way to level the field for first-timers by taking some heat out of investor demand. Fewer investors may be a good thing for entry-level buyers in theory. In practice, fewer people of any kind are lining up for a loan.
Why a tax tilt cannot fix a repayment problem
Here is the catch. Tax settings change who competes with you at auction. They do not change what a lender says you can borrow. With the cash rate at 4.6 per cent, a first-timer is being assessed on repayments at a buffer above that rate, and the serviceability test is the gate that matters.
An executive at the agency put it plainly: households are pulling back from taking on extra debt while rates stay high. That fits the pattern. Weaker investor demand can ease competition, but it only helps buyers who can still pass the bank’s test.
The numbers behind the retreat
The average first-home loan has hit a record $743,000. That single figure explains a lot. A bigger loan means a bigger repayment, a bigger deposit gap and a tougher serviceability assessment, all at once.
Key numbers
- 22.1 per cent: annual fall in first-home buyer loan demand in September
- Roughly 20 per cent and 19 per cent: the falls in the two prior months
- $743,000: record average first-home loan
- 280,000-plus: buyers who have used the 5 per cent deposit scheme since 2022
The agency’s view is that serviceability tests, high rates and living-cost inflation are eroding confidence, leaving under-35s reliant on family or institutional help to clear the deposit and repayment hurdles.
The government’s counter, and what it leaves out
A spokesman for the housing minister argued that building more homes is the real priority. He also noted that first-time buyers now hold a slightly larger share of new lending, while investors’ share has shrunk. And more than 280,000 buyers have used the 5 per cent deposit scheme since 2022.
Those points are fair as far as they go. But a rising share of a shrinking pool is not the same as rising access. If total first-home lending is falling by more than a fifth year on year, a bigger slice of a smaller pie is a weak consolation. The share figure also says nothing about how many would-be buyers were screened out before they applied.
What it means for entry-level prices and rents
The base case is that weaker first-home demand takes some pressure off the cheaper end of the market. Fewer buyers chasing the same stock tends to soften competition, particularly where investors have also stepped back. That is a second-order effect worth watching: the segment policy was meant to help may see slower price growth, but not because it has become easier to buy.
The rental side is the flip. Buyers who cannot get in stay renters for longer. If investors are also reducing their exposure, the rental pipeline gets tighter while the pool of tenants grows. That points to firm rents even if sale prices cool. For our earlier look at how investor tax settings shape those decisions, see our guide to negative gearing, CGT and investor tax.
Borrowing power is the common thread. We covered how it is shrinking faster than prices are falling in Melbourne borrowing capacity is shrinking faster than prices fall, and the same arithmetic applies to first-timers nationally.
What could change the direction
Three things would shift this picture:
- A lower cash rate or a relaxed serviceability buffer, which would lift borrowing capacity directly
- A genuine jump in new supply at the entry level, which would ease the price-to-income gap
- A wave of family-assisted deposits, which could support demand without any policy change
None of these looks imminent from the data supplied here. Until one arrives, the three-month trend is more likely to persist than reverse, though one more monthly reading would help confirm it.
One step if you are a first-timer
Get a realistic borrowing figure before you search, not after. Ask a broker to run your numbers at the lender’s assessment rate, not the headline rate, and see how far a $743,000 loan sits from what you can actually service. If you want weekly analysis of moves like this, subscribe to the newsletter.
General info, not financial advice.
