First Homebuyers Drive Record Surge in Property Market Activity
The Australian property market has experienced a significant boom in the first quarter, with a notable surge in activity driven by first homebuyer lending, particularly following the expansion of the 5% Deposit Scheme. Data reveals a substantial increase in the value of loans written for those entering the property market for the first time, signalling a strong start to the year for homeownership aspirations.
Overall home buying activity across the board also saw a healthy increase, indicating a robust market for both first-time buyers and investors. This period marks the first time official figures have incorporated the effects of the expanded 5% Deposit Scheme, alongside the commencement of the Help to Buy initiative, both designed to bolster homeownership.
Key Trends in the Property Market:
- First Homebuyer Loans Skyrocket: The number of loans written for first home buyers saw a significant jump of 6.8% in the December quarter compared to the previous three months. This is a clear indicator that government initiatives are having a tangible impact on the market.
- Broad-Based Homebuying Strength: Beyond first home buyers, the overall homebuying market demonstrated considerable strength, with a 5.5% increase in activity during the quarter. This suggests a healthy demand across various buyer segments.
- Investment Lending Remains Robust: The property market also benefited from continued strong investment lending. The value of investment loans written saw a notable increase, signalling ongoing confidence among property investors.
The average mortgage size for first home buyers has also reached a new high, increasing by a record 8.5% to surpass the $600,000 mark. This substantial rise in loan value, coupled with the increased volume of loans, highlights the growing financial commitment required for first-time buyers, even with assistance schemes in place.
Mish Tan, the ABS head of finance statistics, attributed this uptick in first homebuyer activity in part to the expansion of the 5% Deposit Scheme, which came into effect on October 1. “The 5% Deposit Scheme has increased the eligibility criteria for first home buyers, and we are seeing the early effects of this in our data,” Tan stated.
Furthermore, the Help to Buy Scheme, launched on December 5, offers government equity contributions of up to 40% for eligible participants. This initiative is expected to further support aspiring homeowners by reducing the initial financial hurdle of purchasing a property.
While first home buyers are a significant factor, the broader property market is also experiencing a healthy uplift. The December quarter saw a 5.1% rise in the number of home loans written compared to the preceding period, demonstrating widespread market engagement.
Investment lending also continues to perform strongly. The volume of investment loans written during the quarter increased by 5.5%, with the total value of investment lending showing a substantial year-on-year increase. This sustained investor interest could potentially lead to scrutiny from regulatory bodies.
Regulatory Scrutiny on Investment Lending?
Investors accounted for approximately 40% of the total value of new loans written in the December quarter, marking the second consecutive quarter this proportion has been observed. This level of investor participation, while slightly down from September, represents the highest proportion seen since 2016. Such figures may prompt the Australian Prudential Regulation Authority (APRA) to consider interventions to manage investment lending growth.
APRA has previously expressed concerns about the potential for lower interest rates to fuel credit growth, asset price inflation, and riskier lending practices. High levels of household debt remain a key vulnerability within the Australian financial system, which has a significant exposure to residential mortgages.
In response to these concerns, APRA has already implemented measures such as limits on high debt-to-income (DTI) lending. Curbing investment lending growth is another macroprudential tool available to the authority. Historically, APRA has intervened to moderate investment loan growth, such as in 2014 when it capped annual increases in banks’ investment loan books at 10% to mitigate lending risks.
Given the current strong credit growth, with the total value of new loan commitments in the December quarter being 21% higher than in June, the possibility of similar measures being introduced in the future cannot be ruled out. However, it is worth noting that investment lending in 2025 has remained below the levels seen in 2013 and 2014. Additionally, the impact of the February interest rate hike, which could act as a dampener on credit growth, is not yet reflected in this data.
The Impact on House Prices:
A potential concern surrounding government assistance schemes like the 5% Deposit Scheme is their long-term effect on property prices. While designed to aid affordability, increased demand, particularly at lower price points, could exert upward pressure on the market.
Data from the Cotality Home Value Index (HVI) indicates that house prices in Brisbane, Adelaide, Perth, and Darwin rose by over 5% in the December quarter. The “lower and middle” quartiles of the market, in particular, have seen heightened demand.
Homes valued below the price caps of the expanded 5% Deposit Scheme experienced significantly greater price growth than those above it. Research director Tim Lawless noted that markets operating under these price caps are outperforming in “nine in ten” regions, with the expanded scheme sharpening demand at lower price points.
However, the recent February interest rate hike may help to moderate demand in the short term. Mr. Lawless also anticipates other factors that could soften growth in 2026. “Affordability and serviceability constraints are likely to naturally dampen demand, but also renewed cost of living pressures… there is also slowing population growth to consider,” he explained. These combined pressures could create a more balanced market environment moving forward.
