First-homebuyer applications for mortgages suffers biggest annual plunge since late 2022

First-homebuyer applications for mortgages have plunged at the steepest pace in almost four years despite Labor introducing contentious policies designed to get more young people into the housing market, data from Australia’s biggest credit check company has revealed.

In the year to July, applications for home financing from property newcomers plunged 19.2 per cent, which was the worst annual decline since December 2022 during the Reserve Bank of Australia’s last hiking cycle, Equifax figures show.

Overall mortgage demand across all categories fell 16.4 per cent, which was also the steepest annual decline in almost four years as prospective borrowers grapple with prospect of negative equity where they would owe their bank more than their property was worth, particularly in parts of Sydney and Melbourne where house price falls have been more dramatic in 2026.

Data analyst Kevin James, who is Equifax’s chief solution officer, said first-homebuyers were potentially waiting for potential bargains in the near future, after the Reserve Bank’s three rate rises this year along with Labor’s negative gearing and capital gains tax changes sparked a housing market downturn.

“I think there will definitely be watch and see with the coverage,” he told The Nightly.

Among those aged 18-25, enquiries about getting a loan for the first time plunged by 22.4 per cent as demand among those aged 26-35 fell by 20.9 per cent.

The plunge was particularly pronounced in markets where house prices have surged since the pandemic with applications plummeting by 25.2 per cent in Queensland as demand in Western Australia dived by 19.6 per cent.

But double-digit annual declines were also observed in the other states with NSW applications falling 18.3 per cent as enquiries for a home mortgage among first timers fell by 16.8 per cent in Victoria and by 16.9 per cent in South Australia.

Negative gearing is being restricted to brand new homes from July next year, for investment properties exchanged after Budget night, as the 50 per cent capital gains tax discount was replaced with inflation-adjusted indexation and a minimum 30 per cent tax.

Mr James said the May Budget tax changes meant more first-homebuyers would seek to be owner-occupiers rather than investors, who rented where their career was and rented out a home.

“Being owner-occupier, you’re going to need to live where you want to live and sometimes that’s more expensive and so you’re going to have to wait for those prices to come right,” he said.

The fast tracking of Labor’s 5 per cent deposit scheme to October 1 means first-homebuyers are spared from paying lenders mortgage insurance, which usually applies for those with a deposit under 20 per cent.

But with more of these buyers borrowing more to get into the housing market, Mr James warned that rising unemployment from higher interest rates risked creating forced sales where these borrowers owed their bank more than their home was worth.

“If your house prices start falling, you’ve only got five per cent deposit, there’s a real chance that first homebuyers could end up in a negative equity situation,” he said.

“I don’t want to call it a mortgage prison, it’s not the right language, but you end up locked in a mortgage that you actually cannot get out of without putting additional funds into it.”

Separate data from PropTrack and realestate.com.au - both owned by the REA Group - showed negative equity isn’t yet a concern with just 87 households or 0.2 per cent of 5 per cent deposit scheme recipients owing their bank more than their home was worth.

But in some parts of Sydney, those who put up a 5 per cent deposit to get into the Federal Government scheme are in trouble, following recent house price falls, with those in the Blacktown area in the city’s west having an average, weighted equity of just 2.2 per cent.

In Sydney’s east, even sharper falls have reduced that average equity among first homebuyers to just 0.8 per cent.

Property price falls in Melbourne mean first homebuyers in the city’s inner east who bought under the scheme have an average equity of just 1.9 per cent.