First homebuyer mortgage applications plunge by 20% in a year in worst drop since 2022 as new home sales fall

Mortgage applications from first homebuyers have plunged by an annual pace of more than 20 per cent for the first time in four years as Labor’s Budget changes coincide with a double-digit monthly plunge in new home sales, new figures show.

The threat of yet another interest rate rise by Melbourne Cup day in early November is expected to lock out even more property market newcomers as rents continue to vastly outpace already high inflation.

Across Australia, first homebuyer applications dived by an annual pace of 20.1 per cent in August, marking the most dramatic decline among this group since the Reserve Bank’s last hiking cycle in 2022, new data from credit check firm Equifax showed.

But in the nation’s most expensive housing market, NSW, applications from property first timers dived by 22 per cent while in Queensland applications fell by 22.6 per cent.

The drop in first homebuyer applications was much steeper than the overall 14.1 per cent decline for all home loans, highlighting how the RBA’s interest rate rises in February, March and May are hitting the young more.

“Younger Australians continue to be the most impacted amid current market conditions and cost of living constraints,” Equifax’s chief solution officer Kevin James said.

Australians under 35 are also less likely to be applying for other kinds of credit, including credit cards and personal loans with the futures market regarding another RBA rate hike as a 76 per cent chance, that would take the cash rate to a 15-year high of 4.6 per cent.

The drop in first homebuyer applications has worsened since Labor’s Budget ended negative gearing from July next year for established homes exchanged after May 12, and replaced the 50 per cent capital gains tax discount with indexation and a minimum 30 per cent tax in a bid to slow home price growth.

The Federal Government policy, designed to boost the supply of housing by keeping tax breaks for brand new rental stock, doesn’t appear to be working with new home sales plunging by 10 per cent in August for a quarterly plunge of 19.3 per cent and an annual decline of 7.7 per cent, new figures from the Housing Industry Association show.

“The new home market cannot absorb further interest rate increases on top of the tax increases announced in this year’s Federal Budget,” the HIA’s chief economist Tim Reardon said.

“This is a tangible and significant deterioration in market conditions and confirms that the recovery in new home building that was underway at the start of the year, has been interrupted.

“The tax increases announced in the Federal Budget have weakened market confidence at the same time that three interest rate increases have reduced household borrowing capacity and increased mortgage repayments.”

Victoria had the steepest quarterly decline of 27 per cent followed by Queensland on 20.2 per cent, NSW on 17.5 per cent as South Australia saw a 10.8 per cent slide and Western Australia suffered an 8.2 per cent plunge, which Mr Reardon said was bad news for home building activity next year.

“The decline in sales through the middle of 2026 will mean fewer homes commencing construction in 2027,” Mr Reardon said.

“This slowdown will occur without a corresponding reduction in Australia’s underlying need for housing. Population growth, low unemployment and the existing shortage of homes will continue to generate demand for additional housing supply.”

That’s little comfort for young people trapped in the rental market with national rents soaring by 7.3 per cent in the year to September 4 to $701.53 a week

This increase was double Australia’s already high 3.5 per cent inflation rate for July, new data from SQM Research showed.

The smaller capital cities had the biggest increases with median Hobart rents for houses and units combined rising by 10.4 per cent to $607.37 a week as Darwin rents rose by 8.7 per cent to $720.65.

SQM Research managing director Louis Christopher said rental stress was more likely to continue in smaller capital cities.

“Nationally, annual rental growth is likely to slow to the mid-single digits by year-end even with a normal seasonal firming, simply because the strong months of late 2025 drop out of the calculation,” he said.

“The smaller capitals have not yet built enough stock to give tenants relief.”

In the larger capital cities, rent rises still outpaced inflation with Sydney rentals increasing by 5.4 per cent to $909.53 as Melbourne rents rose by 6.1 per cent to $695.18.

Brisbane rents meanwhile went up by 7.7 per cent to $756.15 as Perth rents climbed by 7.1 per cent to $801.73.

Renters suffered less stress in Adelaide where rents rose by a more moderate 3.4 per cent to $644.04 as Canberra rents edged up by 3.3 per cent to $687.88.