Auctioneer and real estate industry veteran Tom Panos said first-home buyers were at risk of negative equity, where they owe the bank more than their properties are worth.
Falling home prices have fuelled fears that first-home buyers who recently used government deposit schemes could be in danger of holding mortgages worth more than their properties.
New PropTrack figures showed prices have been tumbling in major markets like Sydney and Melbourne over recent months, with drops close to 5 per cent in some city areas.
This has created a danger for those who have used the Australian Government 5 per cent Deposit Scheme.
The scheme, which was expanded in October, allows eligible first-home buyers to get into the market with fractional deposits – without needing pricey lenders’ mortgage insurance.
But falling prices mean there is a growing risk that many of the recent users of this scheme could slip into negative equity, a situation where they owe the bank more than their homes are worth.
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Expansion of the scheme was a key pledge by Labor ahead of the 2025 federal election. Picture: Matt Jelonek
Prominent auctioneer and real estate industry commentator Tom Panos said first-home buyers who used the scheme were now vulnerable because “they borrowed so much”.
High numbers of first-home buyers in negative equity could become an “unintended consequence” of the scheme, Mr Panos said, slamming the government for “seducing” people into using the program.
“Who in the government is going to take responsibility for encouraging, seducing, people to borrow a million dollars and go buy a property for $1.05m using a 5 per cent deposit?
“And if those properties are now worth $900,000, who is going to take responsibility?”
Mr Panos explained in an online video that continued price falls were a major possibility because of recent government tax reforms, including changes to capital gains tax and negative gearing, coupled with higher interest rates and lower buyer sentiment.
He noted that advertised prices in some parts of Sydney and Melbourne were down “10, 20 per cent” on what they were last year, adding that auction clearance rates last week hit a six-year low.
“Homeowners think they are going to become poorer. They think the value of their homes are going to be lower,” Mr Panos said. “I really hope first-home buyers don’t go into negative equity.”
Tom Panos said he felt that many first-home buyers were being seduced into using the scheme. Picture: Alison Wynd
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SQM Research director Louis Christopher told The Daily Telegraph negative equity would be a ‘nightmare” for homeowners as it raised the risk of them owing the bank money if they ever needed to sell.
“I wouldn’t wish it on anyone,” he said.
It comes as Equifax data showed the deposit scheme had increased first-home buyer participation in the market, with mortgage inquiries from those aged 18-25 growing 22.8 per cent since the expansion of the deposit scheme in October.
Critics of the scheme have argued that it may have pushed first-home buyers into bigger debts than they would otherwise have taken.
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Auction clearance rates have fallen to a six-year low. Picture Monique Harmer
Real Estate Institute of Australia president Jacob Caine said the scheme had an adverse impact on affordability as buyers took on larger loan sizes.
“The expansion of the 5 per cent Deposit Scheme has clearly succeeded in enabling more Australians, particularly first-home buyers, to enter the housing market,” Mr Caine said.
“However, the consequence has been that many new buyers have been able to commit to larger loans under the scheme, which has increased the proportion of household income required to service a mortgage.”
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