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With all four major banks now flagging a fourth 0.25-percentage-point hike of the year at the Reserve Bank of Australia’s next meeting on 28–29 September, the association and its brokers have warned of a shrinking window for first home buyers (FHB) to enter the market.
According to a YouGov survey of more than 2,000 Australians planning to buy property within the next three years, commissioned by the Mortgage and Finance Association of Australia (MFAA), the top three challenges for prospective first home buyers were saving for a deposit, keeping up with repayments, and interest rate changes.
Saving for a deposit was cited by 43 per cent of respondents, followed by keeping up with repayments at 39 per cent and interest rate changes at 29 per cent.
Credit reporting bureau Equifax found that mortgage demand among FHBs plunged 20.1 per cent nationally in August compared with the same month last year. This represented a steeper decline than overall mortgage demand, which fell 14.1 per cent over the same period.
House prices fall, but serviceability falls further
The MFAA noted that, should that rate hike come to fruition, a rise of that size would add close to $100 to monthly repayments on a $600,000 loan if passed on in full. It would also reduce the same household’s borrowing capacity by around $13,000.
Meanwhile, house prices have been slumping, particularly in the higher price quartile.
Data analytics company Cotality’s national Home Value Index fell 0.9 per cent over the month, taking national values 3.1 per cent lower over the quarter and 3.6 per cent below their March peak.
However, Samantha Harvey, senior mobile broker for Aussie, said falling house prices had only “minutely” offset serviceability constraints.
“We’re back in some of the toughest borrowing conditions we’ve seen, with rates around their recent peaks and living expenses and HEM also increasing,” Harvey said.
“A first home buyer can be confident, have saved their deposit and be ready to act, but ultimately, the numbers still have to work.
“A good example is a FHB couple I’ve been helping throughout the year. Rate increases initially made borrowing tougher, but a short window of opportunity then opened up. More properties came within their affordable range heading into spring, and it felt like we were finally getting somewhere.
“Now, with potential rate increases in sight and borrowing capacity under pressure again, we’re back to fighting that maximum purchase price.”
Harvey added that earlier in the year, a window of opportunity opened up for borrowers who had pre-approval before budget changes and weaker property prices.
“That window now appears to be closing,” she said.
The news comes as Australia recorded its worst affordability figures on record in the 2026 financial year, with a household earning the average $125,000 able to afford just 12 per cent of homes sold during the year.
Deposit schemes insufficient
Sarah Smelt, director of Finance Society, said schemes such as the 5 per cent Deposit Scheme, which has been hugely popular over the last year, could not remedy the problem facing many FHBs.
“The 5 per cent Deposit Scheme can solve the deposit problem, but it doesn’t solve the borrowing capacity problem. I think that’s probably the biggest misconception,” she said.
“You still have to be able to service the loan. For the right buyer these schemes are incredibly helpful, but serviceability can still be the thing that determines what they can actually buy.”
Similarly, Harvey said market conditions had affected the scheme’s ability to deliver for FHBs, particularly for single applicants.
“I’m Sydney-based, and having enough deposit to qualify for the 5 per cent Deposit Scheme is one thing; having the borrowing capacity to buy is another. For a single first home buyer, borrowing power simply doesn’t go very far in Sydney,” Harvey said.
“I’m seeing more interest in the Help to Buy Scheme, as well as more first home buyers looking to purchase jointly with family members. The deposit hurdle might be getting easier but for some buyers borrowing capacity has become the bigger challenge.”
Waiting on the sidelines
However, FHBs are also increasingly seeing mortgage brokers as a way to bridge the widening gap between serviceability and house prices.
According to the MFAA’s survey, two in five prospective FHBs are not confident in navigating the home loan market without professional help.
When prospective first home buyers were asked who they trust when buying property or taking out a home loan, almost six in 10 named a broker, compared to half naming a financial adviser and fewer than half naming their own bank.
Almost nine in 10 said they are likely to use a mortgage and finance broker for their next purchase, while broker market share has grown to 81.6 per cent in the June quarter.
Smelt said FHBs were not out of the market, but waiting for a more optimal time to enter.
“I don’t think first home buyers have disappeared at all,” she said.
“We recently held our biggest first home buyer seminar in five years, which I think says a lot. People still really want to buy. They just want to understand what they’re doing before they jump in. We’re getting lots of questions around borrowing capacity, repayments, deposits, the government schemes and what happens if rates move again.
“So yes, buyers are probably a little more cautious, but I actually think that’s making them more educated rather than just putting them off altogether.”
Caroline Jean-Baptiste, mortgage broker with Mortgage Choice, said: “For clients who aren’t quite ready, education builds confidence.
“Many of my clients start putting their estimated loan repayment into savings every month. By settlement they’re already living on that budget, so the move into home ownership feels seamless.”
Anja Pannek, CEO of the MFAA, said: “Falling prices may be opening doors that were closed six months ago, while higher rates are narrowing what people can borrow.
“Whatever the RBA decides on 29 September, the most useful step is the same: sit down with a mortgage broker and understand what your borrowing power looks like under different scenarios.”
[Related: Westpac forecasts slump in investor activity following budget]
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