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First Home Buyers at Risk of Negative Equity Under New Scheme

In a recent analysis by Eliza Owen, the head of research at Cotality, concerns have been raised about the potential financial consequences for first-home buyers under the Albanese government's new 5% deposit scheme.

This scheme, known as the First Home Guarantee, allows buyers to purchase property with just a 5% deposit, with the government covering a 15% mortgage guarantee.

Owen's insights highlight the financial impact of this initiative, particularly regarding the added cost of interest and the risk of negative equity.

Under this scheme, buyers of median-priced homes, valued at $848,858, could end up paying over $130,000 in additional interest over the life of a 30-year loan, based on a 5.5% per annum average mortgage rate. However, there is a potential upside for early market entrants, as they may benefit from reduced rental expenses. Owen highlights the substantial savings in Sydney, where the 5% deposit requirement could shorten the deposit-saving period by six years and reduce rental costs, currently averaging $801 per week, by about $251,000.

The scheme's expansion is expected to initially drive up demand, leading to a temporary rise in property prices. As Owen explains, this demand-side stimulus, coupled with interest rate decreases and constrained housing supply, could push home values to the scheme's threshold. While early participants may successfully navigate market entry hurdles, future buyers might face a more inflated market, acquiring homes with smaller deposits and enlarged mortgages.

Such dynamics raise the spectre of negative equity, particularly if house prices experience significant downturns. Past experiences in comparable markets, such as New Zealand and Canada, where house prices have fallen by more than 15% from peak levels, suggest that Australian buyers could encounter similar challenges. This scenario would not only affect individual homeowners but also the broader financial system, given the government's 15% mortgage guarantee, which could amass substantial contingent liabilities for Australian taxpayers.

Published:Thursday, 2nd Oct 2025
Source: Paige Estritori

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Finance News

Star Entertainment Group Secures Loan Covenant Waiver Amid Financial Challenges

05 Oct 2025: Paige Estritori

Star Entertainment Group, a prominent Australian casino operator, has successfully secured a loan covenant waiver under its syndicated facility agreement as of September 30, 2025. This development comes at a critical juncture for the company, which has been navigating a series of financial and operational challenges. - read more

ANZ Bank Faces A$240 Million Penalty for Bond Deal Misconduct and Customer Service Failures

05 Oct 2025: Paige Estritori

ANZ Group, Australia's fourth-largest bank, has agreed to pay a record A$240 million ($159.5 million) in penalties following investigations by the Australian Securities and Investments Commission (ASIC) for major misconduct. The violations include acting unconscionably during a A$14 billion government bond deal in April 2023, which the regulator says led to A$26 million in lost government funds. ANZ’s improper trading placed downward pressure on bond prices, undermining government funding. - read more

Commonwealth Bank of Australia Achieves Record A$10.25 Billion Profit Amid Lending Surge

05 Oct 2025: Paige Estritori

Commonwealth Bank of Australia (CBA) has reported a record full-year cash profit of A$10.25 billion ($6.69 billion) for the fiscal year ending June 30, 2025. This impressive performance is attributed to robust growth in both home and business lending, coupled with stable interest margins. - read more

DBS Bank Targets A$20 Billion in Australian Lending Amidst Strengthening Trade Ties

27 Sep 2025: Paige Estritori

DBS Bank, Singapore's largest lender, has announced ambitious plans to double its Australian lending book from A$11 billion to A$20 billion over the next five years. This strategic expansion aims to capitalize on the growing trade relationships between Australia and Southeast Asian nations, including Singapore, Indonesia, Malaysia, and Vietnam. - read more

Japanese Banks SMBC and MUFG Drive Growth in Australian Business Lending

27 Sep 2025: Paige Estritori

In a notable shift within Australia's financial sector, Japanese banking giants Sumitomo Mitsui Banking Corporation (SMBC) and Mitsubishi UFJ Financial Group (MUFG) have emerged as key drivers of growth in business lending. As of July 2025, business lending volumes across Australia's top 10 authorized deposit-taking institutions (ADIs) reached A$925 billion, with SMBC and MUFG leading the expansion. - read more

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