Written

For

The

Australian

-

First-home

buyers

in

negative

equity

squeeze

as

property

markets

soften

Could the government's helping hand actually be pushing first-home buyers off a cliff?

That's the uncomfortable question I've been wrestling with as I look at the numbers behind the 5% Deposit Scheme. Since its inception, 248,000 Australians have used it to get into the property market, with 61,281 jumping in during the 2024-25 financial year alone. The pitch is seductive: skip the painful years of saving a 20 per cent deposit and get into a home now. But here's what nobody seems to be talking about — lenders insist on that 20 per cent buffer for a reason.

With property values softening, three RBA rate hikes already this year, and forecasts pointing to a further 5 to 10 per cent decline in dwelling prices, we're staring down the barrel of a negative equity problem that could engulf up to 100,000 recent buyers. Do the maths on an average $1m home: a 10 per cent fall puts the typical 5% Deposit Scheme borrower $50,000 underwater. Multiply that out and we're talking billions in combined negative equity.

What concerns me most is the fine print most buyers never read. The scheme has no income cap (someone on $500,000 can use it), no mandatory financial literacy requirement, and it's open to permanent residents who can simply leave the country. If they walk, the taxpayer foots the bill to the banks. That's not a housing policy — that's a contingent liability dressed up as compassion.

For those already caught in the squeeze, my advice is to ride the cycle. Property has always moved through growth, peak, fall and trough. Consider a granny flat for extra income (mind the CGT consequences), renovate to manufacture equity, or look at renting the property out before selling at a loss.

The real question is whether the government will eventually bail out the very buyers it lured in with wafer-thin deposits. I suspect we'll find out sooner than anyone would like.