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The Albanese government expanded the scheme in October last year with the removal of salary caps and increase of price caps. Picture: ABC First-home buyers who purchased units in Sydney and Melbourne’s high-growth pockets using government’s 5 per cent deposit scheme have been warned they face the greatest risk of owing their bank extra money if forced to sell. With home prices in both cities an average of more than 6 per cent below levels reported last year, a significant share of first-home buyers who used small deposits are expected to already be in negative equity.
And a new report by property analytics group FoundIt has revealed many of these buyers could sink even deeper underwater financially in the next six months. MORE: What your home will be worth in 2031: all suburbs list The report tracked negative equity risk across regions where homes were eligible for the scheme after its expansion in October last year, showing Sydney’s high-density unit markets and Melboure’s outer housing estates were among the most vulnerable. FoundIt head of research Kent Lardner said negative equity risk would be devastating for those who could not hold onto their properties.
“The people genuinely exposed are those who need to sell, refinance or move in the next two or three years,” Mr Lardner said. Among the properties flagged as particularly risky were apartments in the Carlingford region of Sydney’s northwest, along with those in Sydney’s inner city and the Strathfield-Burwood-Ashfield area. These areas had already seen large drops in prices but a growing glut of unsold apartments and the lengthening time it took properties to change hands suggested more falls were on the cards, according to FoundIt.
MORE: ‘No idea’: Woman loses home in Albo’s rule change Units in the Strathfield-Burwood-Ashfield growth corridor fell by an average of 5.2 per cent since the 5 per cent scheme was expanded in October and were forecast to drop another 2.4 per cent by March 2027. These drops would mean the average first-home buyer who entered the market with a 5 per cent deposit would have to inject a further $10,000 into the sale on top of the debt obligation they had to the bank. Reserve Bank governor Michele Bullock is now widely expected to annouce another rate hike in 2026.
Picture: Nikki Short First-home buyers who bought shortly after the scheme expansion are most at risk of negative equity, according to FoundIt. Picture: Annette Dew Unit values in Carlingford, where a large pipeline of new building projects were launched after Sydney Metro Northwest opened in 2019, declined by an average of 9.7 per cent between October 2025 and September 2026. Unit values in the area were forecast to only drop another 0.2 per cent in the next six months, but the cumulative shock of this and previous falls would leave first-home buyers on the hook for a gigantic sum if selling.
The average buyer who used a 5 per cent deposit to enter the market in late 2025, just after the scheme expansion, would need to stump up an extra $45,000 after selling. Units in Sydney’s inner city were down an average 9.7 per cent since October last year and were tipped to drop another 3 per cent, leaving 5 per cent deposit purchasers owing $39,000 after selling. Shadow Housing Minister Andrew Bragg said the expansion of the scheme was “unfair”.
Picture: Hilary Wardhaugh The Melbourne areas where negative equity risk was highest for 5 per cent deposit unit buyers were Mannington-West, Frankston, Kingston and Whitehorse-East. Negative equity risk was also high for house buyers in Dandenong, Mornington Peninsula, Whittlesea-Wallan, Wyndham and Casey-North. The Australian Government 5 per cent Deposit Scheme allows buyers to enter the market with low deposits without needing to pay pricey lender’s mortgage insurance.
It was expanded in October with the removal of salary caps and the extension of previous price caps – making properties in Sydney priced under $1.5m eligible for the scheme. The cap in Melbourne is $950,000. “The 5 per cent Deposit Scheme did exactly what it was designed to do: it pulled first home buyers forward,” Mr Lardner said.
“The problem is that it pulled them forward into the top of a rate cycle ... the price paid in the scheme’s first quarter is no longer the price on offer.” Shadow Housing Minister Andrew Bragg said expanding the scheme last year was “unfair”, with buyers who took up 95 per cent mortgage “now likely to be in trouble”. “Labor expanded the scheme without fixing housing supply,” Senator Bragg said. “First home buyers ... are now facing the very real prospect of owing more than their home is worth,” Senator Bragg said.
A spokesperson for Minister of Housing Clare O’Neil said many first-home buyers wouldn’t have been able to get into the market without the scheme, noting it had saved $2.5 billion in lender’s mortgage insurance. “For a first home buyer purchasing the national median-priced home with a 5 per cent deposit, that is an estimated saving of around $23,700,” the spokesperson said. MORE: Man’s horror as rental home keeps burning down Investor exodus draining rental pool, figures show
Source: Real Estate
