Why First Home Buyers Aren't Buying Despite Bigger Loans

A policy framed as first home buyer support should, in theory, produce more first home buyers in the market. The data tells a different story.

Recent budget changes were positioned as a direct benefit for first-time buyers, yet activity in that segment has slowed rather than picked up. Meanwhile, investors have adapted their behaviour in ways that are quietly working against the very group the policy was meant to help.

A conversation between Arjun Paliwal and mortgage broker Jack Fouracre unpacks three specific mechanisms behind this gap between policy intention and market outcome, and what it means for investors watching from the sidelines.

What Happened

The discussion opens with a direct observation: despite expanded loan options such as 95% and 98% loan-to-value ratios for eligible first home buyers, actual first home buyer activity has declined rather than increased. The conversation attributes this partly to nervousness and hesitation among first-time buyers in an uncertain policy environment, illustrated by a specific example where a property that attracted twelve competing offers before the recent changes attracted only two after, both from investors rather than first home buyers.

From there, the conversation identifies three distinct mechanisms working against first home buyers: a shift in investor behaviour toward higher-yielding, more affordable properties that increases competition at the exact price point first home buyers typically target; reduced borrowing capacity pushing a broader range of buyers toward the same affordable segment; and rising rents, driven partly by owners choosing not to sell rental properties, which erodes the ability of renting first home buyers to save a deposit in the first place.

The conversation closes by reframing this dynamic from an investor's perspective, suggesting that periods of first home buyer hesitation can represent a window of reduced competition before broader market confidence returns.

Key Takeaways

Why Bigger Loans Haven't Translated Into More First Home Buyer Activity

Despite the availability of higher loan-to-value ratio options, the discussion points to a disconnect between policy design and actual uptake. First home buyers are described as cautious by nature, often asking more questions and moving more slowly through a purchase decision than investors. In an environment shaped by policy uncertainty and shifting sentiment, that caution appears to be outweighing the incentive of easier access to lending.

A Real-World Example of Investor Withdrawal, Not First Home Buyer Uptake

A specific case is described where a property attracted twelve competing offers before recent policy changes and only two afterward, both from investors rather than first-time buyers. This illustrates that reduced competition in some segments has come from investor withdrawal rather than a genuine influx of first home buyers stepping into the space created.

How Reduced Investor Gearing Benefits Are Shifting Investor Behaviour

With the immediate tax benefit of negative gearing deferred rather than eliminated under current settings, some investors are adjusting by targeting higher-yielding properties to offset the change. Higher-yielding properties tend to sit at the more affordable end of the market, the same price bracket many first home buyers are competing in, intensifying competition exactly where affordability pressure is already highest.

Why the More Affordable End of the Market Is Holding Up Relative to the Top End

Borrowing capacity constraints introduced by recent policy and calculator adjustments have pushed a broader range of buyers, including those who might otherwise have purchased at a higher price point, toward the more affordable segment of the market. This has kept prices in that segment comparatively resilient, even during a period of broader negative sentiment, while first home buyers face stronger competition there than before.

Rising Rents Are Undermining the Ability to Save a Deposit

A significant portion of first home buyers are renters working toward a deposit. With owners increasingly reluctant to sell rental properties, partly to preserve gearing benefits tied to a property's original purchase date, available rental stock has tightened, and rents have risen. This directly reduces the amount a renting first home buyer can save each month, working against the stated aim of improving first home buyer access.

The Flow-On Effects of Rising Rent Beyond the Immediate Cost

Beyond the direct financial impact, the discussion highlights a less obvious consequence: rising rents can push people to relocate to more affordable but less convenient areas, which in turn can affect their proximity to employment, their willingness to pursue certain jobs or industries, and potentially their income trajectory over several years. This reframes rent increases as a factor that can influence career and life decisions well beyond the immediate cost of housing.

First Home Buyers Tend to Act at the Extremes

The discussion notes that first home buyers, as a group, often move between two behavioural extremes: pulling back entirely during uncertainty, or acting quickly out of a fear of missing out once sentiment shifts. Currently, a meaningful share of this segment is described as being in a retreat phase, despite policy conditions ostensibly designed to support them.

What This Means for Investors Watching From the Sidelines

The discussion frames the current period of first home buyer hesitation as a potential window for investors, one where reduced competition in certain segments may not persist once broader market confidence returns and buyers who have been holding back decide to act.

Observed Market Shifts Discussed

• Example property: 12 competing offers pre-policy change vs. 2 competing offers post-change (both investor, not first home buyer)

• Government rental growth estimate referenced in the discussion: approximately 2% (described as materially understating observed conditions)

• Segment affected by reduced borrowing capacity: buyers previously targeting price points above the affordable end, now competing at lower price brackets

• Estimated share of first home buyers described as currently in a "retreat" phase: roughly 15–30%, depending on confidence conditions

Actionable Lessons for Investors

• Recognise that reduced first home buyer competition in the affordable segment may reflect a temporary window rather than a lasting shift, and is more likely explained by investor behaviour than genuine first home buyer uptake.

• Understand that higher-yielding, more affordable properties are likely to see increased investor interest as a response to deferred gearing benefits, which affects competition dynamics at that price point.

• Track rental market conditions as a leading indicator, since rising rents can signal tightening supply from investors and owner-occupiers holding rather than selling.

• Consider that periods of broad hesitation among first home buyers, rather than reflecting weak fundamentals, may present a comparatively less competitive buying window for informed investors.

A policy intended to help first home buyers appears, based on the patterns discussed, to be producing a different outcome in practice: increased investor competition at the affordable end of the market, tighter rental supply, and a first home buyer segment responding with caution rather than confidence. For investors, understanding this gap between policy intention and market behaviour offers a clearer read on where genuine opportunity, and genuine competition, currently sits.

If you want to see how this can apply to your own portfolio, book a free discovery call with the InvestorKit team.