‘Trapped’: Lendi issues warning to Australian first homebuyers over owing banks more than homes are worth

Australia’s largest mortgage broking group is warning recent first homebuyers are most at risk of being trapped owing their bank more than their home is worth as property prices fall and a record number of borrowers get a loan with a very small deposit.

Lendi Group chief executive Sebastian Watkins said recent borrowers who took out a mortgage with a deposit under 20 per cent were particularly vulnerable during a housing market downturn, including an estimated 300,000 who have bought their first home with the Federal Government’s expanded 5 per cent first home deposit scheme during the past year.

“A lot of first homebuyers who have just gone into their first mortgage with a 5 per cent deposit don’t typically have lots of money lying around to cover that gap should they need to sell,” he told The Nightly.

“In an instance where they do lose their job, or they are forced to sell, they’re going to be taking a loss on that investment regardless so they’re effectively going to be trapped into that instrument.”

A record number of owner-occupier borrowers took out a loan with a deposit of less than 5 per cent in the June quarter, new banking regulator data released on Thursday showed.

October 1 marks the first anniversary of Labor’s first home deposit scheme being expanded to spare first-time borrowers, regardless of their income, from having to pay lenders mortgage insurance as the Federal Government acted as guarantor for their equity under 20 per cent.

While supportive of that scheme, Mr Watkins said Labor’s May Budget changes to negative gearing and capital gains tax concessions were hurting the very first homebuyers Treasurer Jim Chalmers promised it would help, including those who entered the market via the first homebuyer program.

“What hasn’t gone in their favour is the recent Budget settings and the impact that’s had on the property market,” he said.

“It’s being done under the guise of helping young Australians into property, but I think we’re quick to forget that all the young Australians who helped into property last year are now going to be facing into potentially negative equity but certainly compression in the asset that they bought.

“It’s hard to argue that these policy settings against the backdrop of persistent inflation have been good for young Australians.”

Labor’s first homebuyer scheme led to a record 4.31 per cent of owner-occupier borrowers getting a loan with a deposit of five per cent or less in the June quarter comprising $15.6 billion worth of new mortgages since October 1, new data from the Australian Prudential Regulation Authority showed.

Real estate data group PropTrack estimated 480 borrowers during that period went into negative equity since Labor’s 5 per cent deposit scheme was expanded.

“The number of borrowers getting into the property market with barely any skin in the game has surged yet again, at the same time the housing market is shifting into reverse,” Canstar data insights manager Sally Tindall said.

“Buying with a 5 per cent deposit can get you through the door, but it doesn’t give you much of a safety net once you’re inside.”

Aussie Home Loans, which merged with Lendi in 2020, has released new data showing one in five of their mortgage broking customers entered the market with a deposit of less than 20 per cent between July 2023 and August 2025, during a period which covered the Reserve Bank both hiking and then cutting interest rates.

“That is, unfortunately, the danger spot for customers when there’s a house price correction to the magnitude that we’re seeing today,” Mr Watkins said.

The Commonwealth Bank, Australia’s biggest home lender with a 45 per cent stake in the Lendi Group, this month forecast a 9 per cent peak-to-trough fall in national home prices, including a 13 per cent plunge in Sydney and a 12 per cent fall in Melbourne as part of the worst decline since 1983.

Like ANZ and Westpac, CBA is forecasting another rate hike on November 3 that would take the Reserve Bank cash rate to a 15-year high of 4.6 per cent, which would have seen borrowers cop four hikes this year.

NAB and ANZ on Thursday hiked their fixed mortgages rates by up to 20 basis points, just 12 days out from the RBA’s next meeting.