Australia’s recent housing downturn has raised concerns that some first-home buyers who purchased with small deposits could find themselves in negative equity if prices continue to fall.
New analysis based on Cotality housing data and Housing Australia figures shows nine of the ten postcodes with the highest uptake of the First Home Buyer Guarantee have recorded declines in dwelling values since the start of the year, with Melbourne’s outer west and north among the hardest hit.
The First Home Buyer Guarantee allows eligible buyers to purchase a home with a 5 per cent deposit, with the Commonwealth guaranteeing part of the loan, removing the need for lenders mortgage insurance.
According to Cotality, Melbourne’s 3064 postcode, covering Craigieburn, Mickleham, Donnybrook and Kalkallo, has recorded a 1.5 per cent fall in dwelling values since the beginning of the year. The 3029 postcode, which includes Tarneit, Truganina and Hoppers Crossing, has declined 1.1 per cent, while Melbourne’s 3030 postcode has fallen 0.8 per cent.
Tim Lawless, Research Director at Cotality, said recent policy settings had created an unusual situation.
“It was in some ways counterintuitive” that the federal government expanded access to the 5 per cent deposit scheme while tax changes announced in the Budget placed downward pressure on housing prices shortly afterwards, he said.
The findings come after Cotality reported national dwelling values fell 0.4 per cent in June, the largest monthly decline since late 2022. Sydney recorded a 1.2 per cent monthly fall, while Melbourne declined 1.0 per cent.
Economists say buyers who entered the market with minimal deposits are more exposed when prices soften because even relatively modest declines can erode their equity. Negative equity occurs when the value of a property falls below the amount still owed on the mortgage.
For most homeowners, however, negative equity remains a paper loss unless they need to sell or refinance while prices are lower. Buyers who continue making repayments and remain in their homes over the longer term can rebuild equity as loan balances reduce and property values recover.
Housing Australia reported strong demand for the First Home Buyer Guarantee during the 2024-25 financial year, with Melbourne’s growth corridors recording some of the highest levels of participation nationally.
The recent falls follow several years of strong price growth across many affordable suburbs, where first-home buyers have increasingly concentrated because of affordability pressures closer to city centres.
While the latest figures have prompted concerns about highly leveraged borrowers, housing analysts say the broader impact will depend on whether the recent decline proves temporary or develops into a more prolonged downturn.
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