RBA warns five per cent deposit buyers face risk of negative equity
Prime Minister Anthony Albanese urged Australians to buy their first homes with a five per cent deposit before the 2025 election, while ruling out changes to negative gearing and capital gains tax. After the election, his government expanded the deposit scheme and later announced tax changes that, alongside higher interest rates, have contributed to falling house prices. The article argues that recent buyers who borrowed heavily may now owe more than their homes are worth, raising questions about the timing of the policy shifts and the assurances given to voters.
The Reserve Bank’s latest financial stability review says recent borrowers with high loans relative to property values, particularly participants in the deposit scheme, are at risk of negative equity. The government guarantee on these loans protects lenders, not homeowners, and taxpayers could face costs if borrowers default. The article acknowledges that housing tax reform may improve affordability for future buyers, but says the government should have set out its plans before the election and before encouraging buyers into the market.
In short
- Albanese ruled out tax changes before the election.
- Later reforms and higher rates have pushed house prices down.
- Recent five per cent deposit buyers face negative equity risk.
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The case for
Encouraging first-time buyers to purchase with a five per cent deposit can help people who would otherwise wait years to save enter the market and gain a stake in housing. The government could also reasonably argue that tax reforms aimed at improving affordability serve future buyers, even if prices fall in the short term, and that market movements cannot be fully controlled by policy.
The case against
Buyers encouraged to borrow heavily on the strength of a government-backed scheme may face negative equity if prices fall, while the guarantee protects lenders rather than homeowners and could leave taxpayers exposed after defaults. A strong case against the policy timing is that the government should have disclosed planned tax changes before the election and before urging buyers to enter the market, so households could make informed decisions about the risks.
Explained simply
Negative equity is when a homeowner owes more on their mortgage than their property is worth. It can happen if house prices fall after someone buys, especially when they have borrowed most of the purchase price and put down only a small deposit.
Australia’s five per cent deposit scheme lets eligible first-time buyers purchase a home with a smaller deposit, with the government guaranteeing part of the loan to the lender. The guarantee helps protect the lender if a borrower defaults; it does not cover the homeowner’s debt or protect them from falling property values.
The Reserve Bank of Australia monitors risks to the financial system, including whether households can manage their debts. The issue matters because borrowers in negative equity may have fewer options if they need to sell or refinance, while defaults on guaranteed loans could also leave costs for taxpayers.
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Originally published by Daily Mail as “The full scale of Albo’s betrayal of 5% deposit first-home buyers is now clear. Just look at who he chose to protect: PVO”.