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May 16, 2026 — 5:01am
Didn’t anybody drafting last week’s budget think of the 95 per cent first home buyers?
In October last year, the government pulled the trigger – three months early – on a hugely expanded Home Guarantee Scheme, which allows first homebuyers to purchase with a 5 per cent deposit and avoid expensive lenders’ mortgage insurance (usually payable below a 20 per cent deposit).
The means test and cap on numbers were abolished so that every first home buyer suddenly became eligible. At the same time, the allowable purchase price was dramatically increased, closer to the median house price in each area.
And such was the flood of first-time buyers it’s been blamed for spiking prices in that slice – the middle and below – of the market.
Cotality data show that in the six months after October, properties below the price caps rose 6.7 per cent across the country, nearly double the 3.6 per cent increase in higher-priced properties.
Of anywhere, Sydney saw the biggest price decoupling: below the cap, properties surged 4.1 per cent, while above it, they have fallen 1.1 per cent. Of course, it’s all case by case. And fast forward to now and there’s another sting in the tail of the Home Guarantee Scheme.
Any way you cut it, the winners from this budget certainly aren’t first homebuyers – no matter what the government’s advertised intention.
The government goes guarantor for 15 per cent of your property so that you can avoid that lenders’ mortgage insurance. But after paying your 5 per cent, leg-up-onto-the-ladder deposit, you take on a debt that is rungs and rungs higher than you otherwise might: 95 per cent.
Enter three interest rate rises this year, which real estate agents are reporting are dampening demand, and last week’s federal budget.
The capital gains tax clawback could compound an already precarious price situation. With the 50 per cent discount rolling off from July 1, 2027 for all but new build properties, being replaced by indexation, investors may well retreat.
“Investors tend to follow the cycles of capital gain. With the market winding down and entering a softer phase, I think it was always going to be the case that we would see less investment,” says Cotality research director Tim Lawless.
“Now, with changes to taxation policy, the pullback in the flow of new investment to the market is likely to be sharper than it otherwise would have been.”
Lower demand, from a segment that accounted for 41 per cent of loans in the first quarter this year, could push down prices. Now, once you’re in, the value of your property on paper matters not – or it doesn’t if you can hold on to that property.
And the good news is that every buyer has to pass a 300-basis-point rate stress test before qualifying for a loan. So recent first homebuyers have proven they could still cope with 225 basis points more of rate rises.
At least, they proved it before the price of petrol – and everything – jumped. Hanging on, in reality, may be feeling like a white-knuckled ride.
And what of first home buyers who have been deposit saving, and application prepping, and are just ready to finally buy? A 95 per cent loan on now higher-priced property that may go down in value, if only temporarily, seems a bunch more risky.
Of course, first homebuyers still have the option of the rent-vesting strategy. This is where you buy an investment property to let out, maybe in a cheaper area, and continue to rent yourself.
But the budget’s taken the shine off this, too. While existing investors will continue to use negative gearing and deduct losses from their income, you must now buy new builds to do so.
And right there is another artificial property market influence at the first homebuyer end: investor demand for new-build apartments is likely to be at the expense of existing apartments. Good for first home buyers who want to buy an existing apartment; not so good - perhaps – for those who have just bought.
Of course, first home buyers could always abandon their property bid altogether and go the share investment option, as many young Australians now are.
Vanguard reports that the number of people sub-40 who are investing in exchange-traded funds – funds that trade like shares but mirror whole market returns – has doubled in the past two years.
But there’s also a new budget hit to this one. The capital gains tax clawback means an end from July 1, 2027 to the 50 per cent tax discount on any investment that has been held for 12 months … shares too.
The way it will then work is that only the inflation rate for a given year will be knocked off your gain, and the result is subject to a minimum 30 per cent tax rate anyway.
One thing that was left alone in the budget, besides superannuation, was the treatment of dividends and the franking credits investors get for the tax that companies have already paid.
In tandem with the harsher capital gains tax regime, this may swing share investors towards higher-yield, income-generating stocks rather than those that will potentially deliver higher growth.
Any way you cut it, the big winners from this budget certainly aren’t first home buyers – no matter what the government’s advertised intention. Indeed, the biggest winners may well be accountants, wealth advisors and property valuers.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at nicolessmartmoney.com. Follow her on Facebook, X and Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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