First Home Buyer Loans Fall 20% Despite Budget Promises

Loan lodgements from first home buyers have dropped more than 20% since May's federal budget, with investors pulling back even further.

Something unexpected is playing out in the first home buyer market. Despite a federal budget specifically designed to open doors for younger Australians trying to enter property, loan applications from this group have fallen sharply since the May 2026 budget was handed down — and the broader property market has gone unusually quiet as a result.

Property Update reports that Aussie Home Loans, one of the country's largest mortgage brokers, has observed first home buyer loan lodgements fall more than 20 per cent since the budget changes were announced. Investor loan applications have dropped even further — down around 25 per cent — and Westpac reported a similar 20 per cent fall in investor applications in just the first three weeks after the budget announcement.

These are not small fluctuations. They point to a broad-based retreat from the market by the two groups the budget was most directly targeting.

Three Forces Driving Buyers to the Sidelines

Three interconnected pressures appear to be behind the pullback.

First, there is genuine uncertainty about how the new negative gearing and capital gains tax changes will work in practice. Even experienced investors are still working through the implications, and uncertainty is a reliable brake on large financial commitments.

Second, three interest rate rises in 2026 have eaten into borrowing capacity. A first home buyer with the same deposit and the same income as twelve months ago can now borrow noticeably less. Using a borrowing power calculator to model current capacity versus last year's figures can be a sobering exercise for many aspiring buyers.

Third, there is a broader confidence problem. With tax rules changing, rates rising, and constant noise about where property prices are heading, many first home buyers are choosing to sit on their hands rather than commit to the biggest financial decision of their lives.

The result is a market in an unusual holding pattern. The policy changes were designed to reduce investor competition and create more room for first home buyers to step in. But if first home buyers aren't stepping in either, the theoretical benefit of reduced competition doesn't translate into real-world opportunity.

The Property Market Has Gone Quiet

Auction market data tells the same story. Property Update reports that Sydney clearance rates have been sitting in the high 40 to low 50 per cent range since the budget — levels not seen since the pandemic period in 2020. Melbourne hasn't been much stronger.

A healthy, balanced property market typically clears around 60 per cent of homes at auction, so anything consistently in the high 40s signals that buyers and sellers are a long way apart on price expectations. Both Sydney and Melbourne values have slipped from their recent peaks as part of a cyclical correction, and current conditions suggest this softness is likely to continue through the remainder of the year.

This is the part that much of the commentary around the budget has missed. The government's pitch assumed that fewer investors buying established homes would mean less competition and more opportunity for first home buyers. The logic holds on paper. The problem is that it only works if first home buyers actually step into the gap that investors leave — and right now, they're not.

What First Home Buyers Should Consider Now

For first home buyers watching from the sidelines, this is a moment for clear thinking rather than reactive decision-making.

Trying to pick the exact bottom of a property cycle is something even professional investors rarely get right. What matters more is whether you are buying a property with strong long-term fundamentals, in a location with genuine demand, and whether your finances can handle the current rate environment without stretching you beyond a comfortable buffer.

A sensible starting point is understanding your numbers. Use a repayment calculator to model your monthly payments at today's rates — and factor in headroom for any potential further increases — before you begin conversations with real estate agents. Then explore what first home buyer loan options are available to you, including government schemes that may reduce your required deposit or lower your upfront costs.

The uncertainty in the market is not permanent. Borrowers who use this period to get their finances in order, understand their borrowing capacity clearly, and approach the decision on their own terms — rather than in reaction to headlines or policy announcements — tend to make decisions they can stand behind for the long run.

You can read Property Update's full analysis at the source article.