First home buyers are retreating from Australia's property market despite lower prices and less competition, as rising interest rates and tax reforms reshape the housing landscape. Data from Equifax shows home loan applications in May were 10.9% lower than the previous year, with first-time buyer applications down 13.4%. Loan Market reported a 20% drop in first home loan applications in June compared to the same month in 2025.
The cooling follows a period of strong demand fuelled by the government's 5% deposit scheme, which had seen first home buyers account for more than 10,000 new loans a month from October until March. However, the Reserve Bank's interest rate rises have pushed average new loan rates above 6%, prompting many to pause. 'This is what first-time buyers have been waiting for ... and they're just not taking the opportunity,' said Brisbane buyers' agent Lauren Jones.
Property prices are beginning to fall across the board, with homes below the scheme's price caps rising faster for longer but starting to decline in June, according to Cotality data. Higher-end properties are seeing steeper drops: Sydney's top quartile has seen median prices fall by about $90,000 in three months, while Melbourne, Canberra and Hobart's top end also record declines. 'The unrenovated stuff is just sitting there and will be dropping in price quite a bit,' Jones added.
Investor demand is also slumping, particularly for existing homes, after the federal budget cut access to negative gearing for such purchases. Banks reduced investors' borrowing capacity by about 20%, and Westpac reported a fall in investor loans by a fifth from the budget to mid-June. Investor lending had been rising at 10.3% annually in May. Westpac's Carolyn McCann said investors are 'sitting on their hands a bit while they understand the rules.'
However, investor interest remains strong for new properties, which retain tax advantages under the reforms. The shift is part of a broader transformation as the market enters a downturn, with buyers and sellers adjusting to higher interest rates and policy changes.
