Sunita Somvanshi
Sarah bought her first home with a 5% deposit under the federal government’s First Home Guarantee scheme. Six months later, home values in her suburb fell. She is one of more than 30,000 first-home buyers who have slipped into negative equity in Australia this year alone.
The number of first-home buyers in negative equity after purchasing under the expanded 5% deposit scheme has jumped fivefold within the past year, the Australian Financial Review reported. More than 30,000 first-home buyers now face potential negative equity as national home values fell again in July 2026. The First Home Guarantee scheme was expanded to help more buyers enter the market with a smaller deposit — but falling prices have left many borrowers underwater.
If you bought with a 5% deposit under the First Home Guarantee scheme, you could already be underwater as home prices fall. More than 30,000 first-home buyers now face negative equity — owing more than their property is worth. If prices keep dropping, you could owe your bank more than you’d get from selling. Check your loan-to-value ratio now and consider whether waiting for prices to stabilise makes sense before buying. The RBA’s next rate decision in October will be a key signal for mortgage holders.
What Is Negative Equity?
Negative equity means you owe more on your mortgage than your home is currently worth. For first-home buyers using the 5% deposit scheme, a fivefold jump in negative equity means that if home prices fall just 5-10%, you could owe more than your property value — with no equity cushion to fall back on. The expanded scheme allowed buyers to purchase with just 5% down, eliminating the traditional 20% deposit requirement. This lower buffer makes borrowers more vulnerable to price declines.
Who Is Most at Risk?
First-home buyers who purchased in the past 12 months using the 5% deposit scheme are most exposed. Buyers who stretched to their maximum borrowing capacity face the highest risk — even a modest price decline can push them underwater. The AFR reported that the fivefold increase specifically affected 5% deposit purchasers, not those with larger deposits.
Check Your Loan-to-Value Ratio
Check your loan-to-value ratio immediately — it’s the key metric that determines your negative equity exposure. If your LTV exceeds 80%, you are likely underwater. Consider whether waiting for prices to stabilise makes sense before making additional property decisions. The RBA’s October rate decision will be a critical signal for mortgage holders and the broader housing market.
Policy Contradiction
The fivefold jump occurred specifically under the expanded 5% deposit scheme — meaning the very policy designed to help first-home buyers into the market is now the primary driver of negative equity exposure. This creates a direct policy contradiction: the government’s flagship housing program is generating the risk it was meant to eliminate.
What Is Negative Equity for First-Home Buyers?
Negative equity means you owe more on your mortgage than your home is currently worth. For first-home buyers using the 5% deposit scheme, a fivefold jump in negative equity means that if home prices fall just 5-10%, you could owe more than your property value — with no equity cushion to fall back on.
What Happens Next?
The next RBA rate decision in October will be a key signal for mortgage holders. Monthly housing price data from the CoreLogic index will show whether negative equity is spreading further. Check back for updates as the housing market evolves — the next data release could change the picture significantly.
Related: Seattle Housing Market 2026 — housing market context. Also see China Vanke Property Crisis for parallel housing market pressures.
Sources: Australian Financial Review — fivefold negative equity data. Reserve Bank of Australia — rate decisions. Investor’s Choice — negative equity guidance.
