Only 87 Scheme Buyers Are in Negative Equity — But 48% Sit on 5% or Less. The Conversation to Have Now

1. What the analysis found

REA Group has combined Housing Australia data with PropTrack’s Home Price Index to establish how first home buyers using the expanded five per cent deposit scheme are actually positioned.

Of approximately 48,000 properties purchased through the scheme since October 2025, 87 households are in negative equity — fewer than 0.2 per cent of participants.

That number will disappoint anyone who has been predicting a catastrophe. It is a very small figure against a very large cohort, in a period when housing prices have been declining in Sydney and Melbourne and, according to the RBA, becoming increasingly broad-based.

The second number is the one that deserves the attention. Forty-eight per cent of scheme households hold equity of 5 per cent or less, with 52 per cent above that. Nearly half the cohort is sitting on a buffer thin enough that a modest further decline would consume it.

The regional spread is wide. Average equity runs from 14.2 per cent in the Queensland Outback, 12.7 per cent in the Western Australia Outback and 12.2 per cent in the South Australia Outback, down to 2.0 per cent on the Mornington Peninsula, 1.9 per cent in Melbourne’s inner east and 0.8 per cent in Sydney’s eastern suburbs.

2. Negative equity is the wrong thing to worry about

Negative equity matters if a borrower has to sell. For a first home buyer in a home they intend to keep, making repayments they can afford, it is largely an accounting position rather than a practical problem. The loan does not become repayable because the valuation moved.

The condition that actually constrains people is thin equity, and it constrains them in ways that have nothing to do with distress.

A borrower with 3 per cent equity generally cannot refinance to another lender, because they will not meet the LVR requirements and would face fresh mortgage insurance. They cannot access equity for renovations or any other purpose. If they need to sell — a job change, a relationship change, a growing family — the sale costs may exceed their equity and they will need to bring cash to settlement. And they have no capacity to absorb a further decline before the accounting position turns negative too.

None of that is a crisis. All of it is a set of closed doors that the client does not know are closed.

3. Why 48 per cent is unsurprising, and why that matters

Start with the arithmetic. A buyer entering with a 5 per cent deposit begins with 5 per cent equity minus transaction costs. In the first year of a 30-year loan, principal repayments barely move the needle — the overwhelming majority of early repayments are interest. So a scheme buyer’s equity in year one is essentially their deposit plus or minus what the market did.

In markets that have risen, they are comfortably ahead. In markets that have fallen, they are close to where they started or slightly behind. That is exactly the pattern the regional numbers show, and it is a description of the housing market rather than a criticism of the scheme.

The reason it matters is that this is a structural feature, not a temporary one. Low-deposit buyers will always spend their first several years with thin equity. If half the cohort is in that position now, a similar proportion will be in it next year and the year after, with a new cohort entering behind them. This is not a situation that resolves itself — it is a permanent characteristic of a segment brokers now write a lot of.

4. The conversation to have with clients before they buy

The scheme is a good policy for many borrowers and it has enabled purchases that would otherwise have taken years of additional saving. Nothing here argues against using it. But there is a conversation that should happen at application, not at the point a client discovers their options are limited.

Cover four things, and record that you did.

• What thin equity means in practice. That for the first few years they will likely be unable to refinance elsewhere or access equity, and that this is a normal consequence of a low deposit rather than a sign of a problem.
• The cost of selling early. Agent fees, marketing and legal costs on a sale can comfortably exceed 5 per cent of the property value. A client who may need to move within a few years should understand that before they commit.
• Their lender is their lender for a while. Rate competitiveness matters more than usual at the outset, because the ability to move away is limited. Lender selection carries more weight for these clients than for a borrower with 20 per cent.
• What builds equity fastest. Extra repayments matter disproportionately in the early years, because there is no market growth doing the work. Even modest additional payments meaningfully shorten the period of immobility.

That last point is the most useful advice you can give a scheme buyer, and almost nobody gives it.

5. What to do about the clients you already settled

If you have written scheme business since October 2025, you have clients in this cohort right now. They are a good reason to make contact, and a better reason than most.

The call is not a sales call and should not sound like one. It is a position review: here is roughly where your equity sits based on what has happened in your area, here is what that means for your options over the next couple of years, and here is what would change it fastest.

Three practical outcomes usually come out of it. Some clients will want to start making additional repayments once they understand the effect. Some will have a life change coming that they had not connected to their equity position, and will value knowing early. And some will be in better shape than they assumed — the regional figures show plenty of scheme buyers holding double-digit equity — and will be pleased to hear it.

All three are useful conversations, and all three build the kind of relationship that produces referrals. The clients most likely to feel abandoned by the industry are the ones who bought at the edge of their capacity and never heard from anyone again.

6. The wider market context brokers should carry

Two things from the same week give this its proper setting.

The RBA’s Christopher Kent noted on 13 August that housing prices “have declined in Sydney and Melbourne, with declines becoming increasingly broad-based”. That is the environment in which the thin-equity half of this cohort is sitting, and it is the reason the 48 per cent figure deserves more attention than the 87.

Equally, the scheme cohort is not the only group with thin buffers, and the 0.2 per cent negative equity rate is genuinely low. A useful broker is neither alarmist nor dismissive here. The accurate summary is that the scheme has not produced a solvency problem, and that a large minority of its users have limited flexibility for the next few years — which is a manageable situation if it is anticipated and an unpleasant surprise if it is not.

There is also a demand-side observation worth carrying. Finconnex Financial director and mortgage broker Bishnu Aryal described the current first home buyer mood: “They’re not waiting because they can’t buy. They’re waiting because they think they’ll get a much better deal if they’re patient.”

7. What to watch next

• Whether the negative equity count grows as the price declines the RBA described become more broad-based.
• The 48 per cent figure in future updates, which is the more sensitive indicator of stress in this cohort than the negative equity count.
• Lender policy for low-equity refinancing, and whether any lender builds a proposition for scheme borrowers seeking to move.
• Scheme volumes and whether the “waiting for a better deal” sentiment shows up in falling take-up.
• Regional divergence, given the spread from 14.2 per cent to 0.8 per cent is what actually determines individual outcomes.