CBA Warns Low-Deposit FHBs Could End 2026 Underwater

CBA's revised forecasts show first home buyers who bought with 5% deposits in Sydney or Melbourne could end 2026 with almost no equity — or worse.

CBA's updated forecasts paint a sobering picture for first home buyers who stretched into Sydney and Melbourne's expensive markets earlier this year using small deposits under the federal Home Guarantee Scheme. The Commonwealth Bank of Australia (CBA) has revised its price and credit outlook in the wake of three consecutive cash rate hikes and the federal government's housing tax overhaul, warning that some borrowers could finish 2026 with almost no equity — or find themselves underwater altogether.

What CBA's Numbers Mean for Low-Deposit Borrowers

The bank ran the numbers on a specific, real-world scenario. In Sydney, a first home buyer who purchased a $1.5 million dwelling — the maximum allowed under the Home Guarantee Scheme — with a 5 per cent deposit and who has been making principal and interest repayments throughout the year would be left with just $2,377 of equity if Sydney prices fall by CBA's projected 6 per cent through 2026.

The Melbourne picture is more confronting still. Under the same conditions, a borrower who bought a $950,000 property with a 5 per cent deposit and experienced a 7 per cent price fall would end the year almost $8,000 underwater — meaning their loan would exceed the value of their property. That is what the industry calls negative equity, and it matters because it affects your ability to refinance or sell without bringing cash to the table.

CBA senior economist Trent Saunders said the housing tax changes had accelerated a decline already in motion. "The tax changes have accelerated a slowdown that was already underway," he said.

These are modelled scenarios, not certainties. Actual outcomes will depend on the timing and trajectory of any price falls, individual repayment history, and local market conditions. But the bank's analysis underscores why deposit size matters so much in a falling market, and why borrowers who entered the cycle at the top with minimal buffers should understand what their equity position could look like by year's end.

If you are in this situation, it is worth [checking your current borrowing capacity](/calculators/borrowing-power) and reviewing your repayment strategy before conditions tighten further.

Investors Caught Between Rate Rises and Tax Reform

The negative equity risk for owner-occupiers is the headline, but the bigger structural story in CBA's report concerns the combined effect of three cash rate hikes — totalling 75 basis points delivered this year — and the federal government's changes to negative gearing and capital gains treatment on the investor segment.

CBA identified three distinct ways the new policy settings are expected to cool investor activity. First, with deductions and capital gains concessions wound back, established properties will generate weaker post-tax returns; the bank noted that "some investors will find established dwellings less attractive because after-tax returns have declined." Second, lenders will no longer be able to treat the full current-year tax benefit from negative gearing as income when assessing serviceability, which CBA said would directly cap how much some clients can borrow: "borrowing capacity will be lower as lenders no longer include the current-year tax benefit from negative gearing when assessing serviceability." Third, uncertainty around the timing and final details of the reforms will keep some buyers on the sidelines: "Some investors and owner-occupiers are likely to wait for more clarity on market conditions and final implementation details before committing," CBA said.

The volume impact is significant. CBA projects investor new loan numbers will slide from around 60,000 in the December 2025 quarter to roughly 32,000 by the end of 2026. Owner-occupier new loan numbers are forecast to fall from around 90,000 at the end of 2025 to about 70,000 by late 2026 — roughly 15 per cent below the Q4 2025 level.

For investors reassessing their position, our [investor home loan comparison](/home-loans/investor) is a useful starting point for understanding what products are available in the current market.

What the Recovery Timeline Looks Like

Despite the sobering near-term numbers, CBA does not regard the outlook as permanently negative. "We expect lending to start to recover over 2027 as the uncertainty wanes and interest rates decline. Over time, we also expect lower housing prices and higher rents to gradually incentivise investors back into the market, as rental yields increase," the bank said.

Investor housing credit growth is projected to slow to around 3.5 per cent in the middle of 2027 before gradually recovering to just under 4.5 per cent by year's end. Owner-occupier credit growth is forecast to dip to around 5.5 per cent in early 2027 and then lift back to just below 6 per cent by the close of that year.

The practical message for borrowers today is clear. If you entered the market with a small deposit, making extra principal repayments while you can builds an equity buffer that protects you if prices move against you. If you are shopping for your first home, this environment makes careful product comparison more important than ever — explore our [first home buyer home loan guide](/home-loans/first-home-buyer) to see what is on offer, and use our [repayment calculator](/calculators/repayment) to understand your true monthly commitment before you sign.

[The Adviser reports on CBA's updated price and credit forecasts](https://www.theadviser.com.au/broker/48532-cba-flags-rising-negative-equity-risks-and-lending-pullback) in full.