Some who stepped onto the property ladder in late 2025, carrying the smallest deposit the federal scheme allows, now find the debt they carry outweighing the homes they bought. Across Sydney and Melbourne, unit markets that once rose on the promise of first-time ownership are softening under a glut of unsold apartments and slower sales, and the quiet arithmetic of negative equity is settling into household ledgers. Whether this becomes a passing correction or a lasting wound depends largely on who is forced to sell before the market finds its footing again.
Low-Deposit Buyers in Sydney and Melbourne Face Negative Equity as Unit Prices Fall
First-home buyers who entered with small deposits face potential debt beyond their property's sale value and may be forced to sell or refinance.
Pulled forward into the top of a rate cycle
Mark
Why does a 5 per cent deposit make this so much sharper?
Mimi
There's almost no cushion. Buy at a price, lose 5 to 10 per cent of it, and the loan is bigger than the value. Carlingford units are down 9.7 per cent, and the report puts the average shortfall at $45,000 after selling.
Luke
Worth saying those are FoundIt's estimates for an average buyer, not measured outcomes for actual sales.
Mark
And the forecasts?
Mimi
Strathfield-Burwood-Ashfield is projected down another 2.4 per cent by March 2027, Sydney's inner city another 3 per cent, Carlingford just 0.2 per cent.
Luke
Those are projections. The reasoning, a glut of unsold apartments and slower sales, is plausible, but nothing is confirmed yet.
Mark
Does negative equity mean everyone loses?
Mimi
No. Kent Lardner's point is that the exposed are those who must sell, refinance or move within two or three years. Someone who stays put and keeps paying hasn't realised a loss.
Luke
Right, and the report doesn't say how many buyers fall into that group. We don't know how many will be forced to sell.
Mark
How are the politicians reading it?
Mimi
Andrew Bragg blames the expansion and weak supply. Clare O'Neil's office points to $2.5 billion saved in insurance, about $23,700 for a median-priced buyer.
Luke
Both claims are attributed to the parties making them; the article doesn't test either one.
El Pulso
- Average home prices in both cities sit more than 6 per cent below last year's levels, and the ground keeps shifting beneath recent buyers.
- Carlingford unit values have fallen 9.7 per cent in under a year, leaving some 5 per cent deposit owners owing roughly $45,000 beyond a sale.
- Apartment gluts and lengthening sale times signal that forecast declines through March 2027 may still be on their way.
- Politicians trade blame, with the opposition calling the expansion unfair while government defends the savings on lender's mortgage insurance.
- Analysts say the real danger falls on those who must sell, refinance or move within two or three years.
Some who stepped onto the property ladder in late 2025, carrying the smallest deposit the federal scheme allows, now find the debt they carry outweighing the homes they bought. Across Sydney and Melbourne, unit markets that once rose on the promise of first-time ownership are softening under a glut of unsold apartments and slower sales, and the quiet arithmetic of negative equity is settling into household ledgers. Whether this becomes a passing correction or a lasting wound depends largely on who is forced to sell before the market finds its footing again.
A buyer who entered a Sydney unit in late 2025 with the smallest deposit the government allows may now owe the bank more than the property is worth. A new report from FoundIt says this is the situation for many first-home buyers who used the federal 5 per cent deposit scheme in Sydney and Melbourne, and that it could worsen over the next six months.
Home prices in both cities are, on average, more than 6 per cent below a year ago. The steepest exposure lies in Sydney's high-density units, particularly Carlingford, the inner city, and the Strathfield-Burwood-Ashfield corridor, along with several Melbourne unit and house markets. Carlingford has seen unit values fall 9.7 per cent since October 2025, and an average buyer there could need around $45,000 more than their sale price to clear the loan.
FoundIt points to a growing pile of unsold apartments and slower sales as signs that more falls are coming, though it expects the drops to flatten in some areas. Head of research Kent Lardner argues the scheme did its job by bringing buyers forward, but that they entered near the top of the rate cycle. He stresses that the real risk falls on those who need to sell, refinance or move in the next few years.
Politics has followed the numbers. Shadow Housing Minister Andrew Bragg called the expansion unfair, arguing it widened access without fixing supply. The government replied that many buyers would never have entered the market without it, and that it has saved $2.5 billion in lender's mortgage insurance. Whether the forecast declines arrive as predicted will decide how many households are pushed into negative equity.
A buyer who got into a Sydney unit in late 2025 with the smallest deposit the government allows may now be holding a debt larger than the home is worth. A new report from property analytics group FoundIt says that is the position facing many first-home buyers who used the federal 5 per cent deposit scheme in Sydney and Melbourne, and that it could get worse over the next six months.
Home prices in both cities sit, on average, more than 6 per cent below the levels recorded a year ago. FoundIt expects a significant share of buyers who used small deposits to be in negative equity already. The report tracked the risk across regions where homes became eligible after the scheme was expanded in October last year, and found Sydney's high-density unit markets and Melbourne's outer housing estates among the most exposed.
In Sydney, the flagged areas were Carlingford in the northwest, the inner city, and the Strathfield-Burwood-Ashfield corridor. All have already seen steep falls, but FoundIt points to a growing glut of unsold apartments and a lengthening time for properties to change hands as signs that more declines are coming.
The numbers differ by area. Units in Strathfield-Burwood-Ashfield have fallen an average of 5.2 per cent since the expansion and are forecast to fall another 2.4 per cent by March 2027. For an average buyer who entered with a 5 per cent deposit, that would mean putting in a further $10,000 at sale, on top of repaying the bank.
Carlingford is harder hit. A large pipeline of new building projects was launched there after Sydney Metro Northwest opened in 2019, and unit values fell an average of 9.7 per cent between October 2025 and September 2026. Only another 0.2 per cent drop is forecast over the next six months, but the accumulated losses are large: an average buyer who used a 5 per cent deposit in late 2025, just after the expansion, would need to find an extra $45,000 after selling. In Sydney's inner city, units are down an average 9.7 per cent since last October and are tipped to fall another 3 per cent, leaving 5 per cent deposit purchasers owing $39,000 after a sale.
In Melbourne, the areas with the highest negative equity risk for 5 per cent deposit unit buyers were Mannington-West, Frankston, Kingston and Whitehorse-East. Risk was also high for house buyers in Dandenong, the Mornington Peninsula, Whittlesea-Wallan, Wyndham and Casey-North.
The scheme lets buyers enter the market with small deposits without paying lender's mortgage insurance. The October expansion removed salary caps and extended price caps, making Sydney properties priced under $1.5 million eligible; the Melbourne cap is $950,000. FoundIt head of research Kent Lardner said the scheme did what it was designed to do by pulling first-home buyers forward, but into the top of a rate cycle, so the price paid in its first quarter is no longer the price on offer. He stressed that the people genuinely exposed are those who need to sell, refinance or move in the next two or three years.
The politics have followed. Shadow Housing Minister Andrew Bragg called the expansion unfair, saying Labor widened the scheme without fixing housing supply and that buyers who took 95 per cent mortgages are now likely to be in trouble, facing the prospect of owing more than their home is worth. A spokesperson for Housing Minister Clare O'Neil replied that many first-home buyers would not have entered the market without the scheme, which has saved $2.5 billion in lender's mortgage insurance, an estimated $23,700 for someone buying the national median-priced home with a 5 per cent deposit.
What to watch is whether the forecast falls through March 2027 push more buyers who must sell, refinance or move into negative equity.
Citas Notables
The people genuinely exposed are those who need to sell, refinance or move in the next two or three years.— Kent Lardner, FoundIt head of research
Labor expanded the scheme without fixing housing supply.— Andrew Bragg, Shadow Housing Minister
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