The latest quarter has delivered sobering news for Australia's aspiring homeowners. Despite an arsenal of government schemes designed to help, first home buyer (FHB) lending has plummeted to just 29.0% of all owner-occupier loans in Q1 2025, marking the lowest share since December 2022's 27.6%.
This decline isn't just a statistical blip, it represents a fundamental shift in Australia's property market where traditional pathways to homeownership are becoming increasingly difficult to navigate, even with unprecedented government support.
The Numbers Don't Lie: Q1 2025 Reality Check
The data paints a concerning picture for first time buyers. While the 29.0% figure remains above the historical decade average of 25%, the quarterly trajectory tells a different story:
- FHB loan commitments fell 4.2% in the March quarter
- Value of FHB lending dropped 3.2% for the same period
- Despite annual growth of 20.7%, the quarterly momentum has stalled
Perhaps more telling is what's happening to loan sizes. The average first home buyer loan has swelled to $504,694 in 2024, representing a 6% annual increase, with projections pushing this figure to $563,000 by the end of 2025.
To put this in perspective, a 20% deposit on today's median first home buyer property requires $164,000 upfront, an amount that has increased by 50% since 2020. For many Australians earning the median household income, this represents 5.5 years of savings just for the deposit.
Government Schemes: Well-Intentioned but Overwhelmed
Australia's government has never been more active in supporting first home buyers. The current suite of schemes includes:
The First Home Guarantee
This flagship program allows eligible buyers to purchase with just a 5% deposit, avoiding lenders mortgage insurance on properties up to certain price caps. Over 239,000 Australians have accessed this scheme, saving an average of $29,991 in LMI on a $700,000 property.
Help to Buy Scheme
Supporting 40,000 first home buyers with just 2% deposits, the government contributes up to 40% equity for new builds and 30% for existing homes. Income caps have been increased to $100,000 for singles and $160,000 for couples.
Regional First Home Buyer Grant
State-based grants ranging from $10,000 to $30,000 depending on location and property type.
Why These Schemes Aren't Moving the Needle
Despite these comprehensive support measures, several factors are undermining their effectiveness:
Supply vs Demand Imbalance
The fundamental issue isn't access to finance, it's the shortage of appropriate housing stock. Australia faces a projected 262,000 dwelling shortfall over the next five years, with only 79,000 new completions expected in 2026, representing a 26% decrease from 2024 levels.
When government schemes increase buying power but don't address supply constraints, the result is often higher prices rather than increased homeownership.
Investor Competition Remains Strong
Contrary to popular belief that investors are retreating from the market, data shows they're becoming more strategic. Investment lending has actually increased in certain segments, particularly targeting properties that traditionally attracted first home buyers.
The RBA's three interest rate cuts in 2025 (from 4.35% to 3.60%) have increased borrowing capacity by approximately $27,000 to $30,000 for all buyers, not just first home buyers. This means investors with larger deposits and multiple income sources often remain competitive for the same properties.
Geographic Displacement
Government schemes often come with property price caps that don't reflect market reality in desirable areas. In Sydney, for example, the schemes work well for properties up to $900,000, but the median house price is well above this threshold. This forces first home buyers to either:
- Compromise on location, often adding significant commute times
- Consider apartments instead of houses
- Look to regional markets where employment opportunities may be limited
The Regional Success Story
Interestingly, the data reveals significant state variations that highlight where government schemes are working:
South Australia leads with 34.9% of all owner-occupier loans going to first home buyers, the highest on record. This success stems from:
- More realistic property price caps relative to local market conditions
- Strong employment growth in Adelaide
- Government incentives aligned with market realities
Conversely, Victoria saw a 6.1% decline in FHB financing value, largely attributed to ongoing affordability challenges in Melbourne and regulatory changes affecting the broader market.
The Rentvesting Response
Faced with traditional homeownership barriers, 54% of potential first home buyers are now considering rentvesting, where they buy an investment property in an affordable location while continuing to rent where they want to live.
This strategy has seen 21.4% year-over-year growth, with NSW leading at 61% of potential buyers considering this approach. Popular destinations include Perth, regional Western Australia, Townsville, and Toowoomba, where rental yields remain attractive and capital growth prospects are strong.
What the Data Reveals About Market Adaptation
While the term "exodus" may be dramatic, the Q1 2025 figures reveal adaptation rather than abandonment. First home buyers are:
Timing the Market More Strategically
Many are waiting for the anticipated APRA relaxation of the 3% mortgage serviceability buffer, which could dramatically increase borrowing capacity when combined with falling interest rates.
Embracing Alternative Property Types
Units and apartments are increasingly becoming the primary entry point for homeownership, with KPMG forecasting unit prices to rise 4.6% in 2025 and 5.5% in 2026, compared to house price growth of 3.3% and 6% respectively.
Looking Beyond Capital Cities
Regional markets are experiencing unprecedented interest from first home buyers, with regional Western Australia showing 16.1% growth and regional South Australia and Queensland recording 12.2% and 9.7% growth respectively.
The Role of Professional Guidance
In this complex environment, the value of expert guidance has never been higher. Many first home buyers are turning to buyer agents who can navigate the intersection of government schemes, market timing, and property selection.
Professional buyer's agents understand which government schemes apply to specific properties and can identify opportunities that individual buyers might miss. They're particularly valuable in competitive markets where timing and strategy can make the difference between success and disappointment.
Looking Ahead: Policy Changes on the Horizon
The Labour government's re-election in May 2025 has brought significant policy announcements that could reshape the first home buyer landscape:
Enhanced First Home Guarantee (January 2026)
- Removes all income caps and regional restrictions
- No limit on available places (previously capped at 35,000)
- Higher property price limits across all major cities
$10 Billion Housing Investment
- 100,000 new homes specifically for first home buyers
- Properties sold at cost, up to 20% below market value
- Rolling out from 2026-27
These changes suggest the government recognises current schemes' limitations and is preparing more substantial interventions.
Regional Opportunities: Where Success Is Still Possible
Despite metropolitan challenges, significant opportunities exist for strategic first home buyers:
Perth and Regional WA
With a median price around $775,000 and 19% year-over-year growth, Perth offers strong prospects. Regional WA provides 5% rental yields alongside 16.1% capital growth.
Brisbane Outer Suburbs
Infrastructure spending related to the 2032 Olympics is creating opportunities in previously overlooked areas, with improved transport links making longer commutes more viable.
South Australian Regional Centers
Recording 12.2% growth while maintaining affordability relative to capital cities.
The Borrowing Capacity Reality
Each 0.25% interest rate cut increases borrowing capacity by approximately $9,000 to $10,000, and with major banks passing on the full RBA cuts to variable rates, mathematical borrowing power has improved significantly throughout 2025.
However, this increased capacity is being absorbed by price growth rather than necessarily improving affordability. The key insight is that first home buyers need to act strategically rather than simply wait for better conditions.
Expert Strategies for Success
Based on current market conditions, successful first home buyer strategies include:
Geographic Flexibility
Consider areas with strong infrastructure development and employment growth rather than just proximity to current lifestyle preferences.
Property Type Pragmatism
Units and townhouses offer more realistic entry points in many markets, with potential for future upgrading as equity builds.
Timing Coordination
Align government scheme access with market conditions, interest rate cycles, and personal financial readiness.
Professional Support
PropertyGo's buyer agent matching service connects first home buyers with specialists who understand both government schemes and local market dynamics.
Conclusion: Adaptation, Not Exodus
While Q1 2025's 29.0% figure represents a concerning decline in first home buyer market share, the broader picture suggests adaptation rather than abandonment of homeownership dreams.
The combination of enhanced government schemes coming online in 2026, continued interest rate relief, and emerging regional opportunities creates a complex but navigable landscape for determined first home buyers.
Success in this environment requires strategic thinking, professional guidance, and often geographic or property type flexibility. Those who adapt their expectations and strategies to current realities, rather than waiting for ideal conditions, are finding pathways to homeownership.
The "exodus" narrative oversimplifies a complex market dynamic where first home buyers are learning to compete more strategically rather than simply giving up. With 133,308 projected first home buyer loans in 2025 representing 6.5% growth, the absolute numbers suggest continued, if evolved, participation in the market.
For aspiring homeowners, the message is clear: success is possible, but it requires adaptation, strategy, and often professional guidance to navigate the intersection of government schemes, market conditions, and personal circumstances.
Looking for expert guidance on your first home buying journey? Find a qualified buyer agent who understands current market conditions and government schemes available in your area.
