First-home buyer activity has plummeted in the past five years despite the government pouring billions into controversial buyer stimulus packages, while first-time buyer debt has exploded.
New figures from credit reporting agency Equifax have revealed first-home buyer loan sizes in multiple states ballooned by over $100,000, while demand for first-home loans in major states dropped by a third.
The average first-home buyer in South Australia and Queensland was in May seeking loans about $230,000 higher than they were back in 2021, the data showed.
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First-time buyers in Western Australia were getting into even bigger debts, seeking out loans $250,000 higher than five years ago. The rises in NSW and Victoria were about $100,000 and $80,000, respectively.
The Albanese government’s 5 per cent deposit scheme has attracted controversy. Picture: Hilary Wardhaugh
It’s a remarkable debt increase considering interest rates were at record lows back in 2021 – a year before the Albanese government took office – while income levels were similar, meaning buyers’ borrowing power was much higher five years ago.
First-home buyers’ market footprint has also shrunk in every state.
First-home buyers accounted for 41 per cent of NSW loan inquiries in 2021 but were behind only 29 per cent of mortgage demand in 2026. The drop in Victoria was similar.
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Western Australian first-home buyer participation dropped even more dramatically, going from nearly half of sales in May 2021 to 28.7 per cent of sales in May 2026.
Equifax analyst Kevin James said the figures were “not a good look” for a federal government that committed to addressing housing affordability prior to taking office.
They also suggested the government flagship 5 per cent deposit scheme, which was expanded in October, has had mixed results.
First-home buyer Fauzia Hussein, with husband Dhruv Saggar, said high house prices made it challenging.
Mr James explained that the scheme has likely pulled in more higher-income buyers into the market who simply didn’t have much in savings, while doing little to stimulate lower income groups.
It has also left users more vulnerable: the scheme has increased the amount of debt held by first-home buyers and raised the risk that some will fall into negative equity if prices fall further, he said.
Equifax revealed the average new loan inquiry in NSW was $830,000 in May 2026, well above the $727,000 in May 2021.
The most notable rise in debt was among 18-25 year olds, who had an average $162,000 more debt than in 2026.
“It’s a trend you don’t really want to see,” Mr James said.
“(Government) put a lot of work into first-home buyers and they are falling out the market. And then you see the amount they are borrowing is going up.
“If we look at 2021 today, it’s a long way off. The amount first-home buyers have to pay has increased so much and salaries haven’t kept up with that.”
Critics of first-home buyer incentives argue the focus should instead be on promoting housing supply.
First-home buyer activity was likely to continue falling despite high amounts of government support because of the tighter lending climate coupled with a falling market, he said.
“There be will be scepticism about buying,” he said. “First-home buyers are seeing (auction) clearance rates go lower, they are seeing home prices move backwards, so they are holding off.
“There is also scepticism about interest rates. Many first-home buyers have to decide, do you apply for a loan now, knowing rates could go up, or wait to see what will happen. Most are waiting.”
Mortgage Choice broker James Algar said the Australian Government 5 per cent Deposit Scheme had mostly encouraged higher-income first-home buyers to bring forward their plans to buy.
These buyers would likely have entered the market at some stage due to the decent incomes, but used the government scheme to fastrack their plans and avoid saving a larger deposit, he said.
First-home buyers are borrowing more than in 2021, despite their borrowing power getting hammered by interest rate hikes. Picture: NCA Newswire
The 5 per cent scheme helps first-home buyers enter the market with lower deposits without needing the pricey lenders mortgage insurance normally charged on low deposit loans.
Mr James said the government approach has been “one-sided”.
“Your deposit is just one part of it, you also have to afford the purchase and lot of first-home buyers can’t,” he said.
Mr James said home prices would still have to fall dramatically from current levels for housing affordability to improve enough to drive a substantial rise in first-home buyer numbers.
“Even with recent falls – it’s a buyer’s market – affordability is the issue. Someone can come up with the 5 per cent (deposit), but can they borrow the $590,000 for the purchase? Many can’t afford it.”
A spokesman for the Minister for Housing Clare O’Neil last week downplayed concerns about negative equity when approached by The Daily Telegraph.
Mr James said some young Aussies were likely considering stocks instead of a first home purchase.
“The Albanese Labor Government has helped more than 260,000 Australians buy a home through the 5 per cent Deposit Scheme,” the spokesman said, adding that defaults under the scheme were “rare”.
First-home buyer Fauzia Hussein, with husband Dhruv Saggar, said high home prices had stymied their recent search for a home.
“Initially we were aiming for a house and we didn’t realise how truly expensive it was until you started searching,” Ms Hassien said.
They ended up buying a two-bedroom unit off the plan at Mirvac development Highforest in West Pennant Hills and said going for a cheaper unit option felt safer.
“It was the aspect of how ridiculously expensive houses are to the point where it really just became a question of do we want to stretch our finances and purchase a house, or do we want something that’s comfortable that won’t necessarily stretch us.”
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– With additional reporting by Kaylee Cranley
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